Need for Financial Management

Nunziata Lay

Introduction to Business

MGT101_VB

Chapter 19 Assignment

Please briefly summarize in your own words the need for Financial Management.

Please share about and distinguish between the three primary types of budgets used for a financial plan.

Financial management is one of the, if not the most, important parts of managing a business. A person needs to have a clear-cut understanding about the effect financial decisions, both big and small, have on profits, cash flow, and the company’s credit standing. Managing finances proactively can have a major impact on how resilient a business is and whether it can withstand blows from external factors such as a economic downturn or the lack of access to additional funds should they require additional financing. In order to manage finances successfully, 3 different types of budgets need to be developed, managed, and regularly reviewed.

The first is the operating budget, and this covers all day to day financial expenses and profits that result from operating the business. This includes current and projected sales revenue and expenses, effects on revenue and expenses as a result of marketing campaigns and other operating costs like labor and material.

The second type of budget is the capital budget, which is a budget for expected investments in new assets such as building expansions, new equipment, and new innovations. This budget is usually focused on future projects while taking current statistics into consideration.

The last type of budget it a cash budget, or master budget, and this utilizes the information obtain from the operating and capital budget, then develops a clear picture of how much funds are required to cover its internal and external costs, then incorporates that into the cash budget. If external additional funds are required, the source they will receive these from is incorporated int o the cash budget then it is finalized.