What Methods to Use for Financial Management?

financial management

Financial management is needed in the work of a company to implement a process capable of managing economic and financial activities scientific discipline; In this post as Finance experts, we explain methods that can be applied to financial management, in order to improve the results of the company.

Financial Management Methods

In a company, the implementation of financial management should be carried out by a financial manager, a person who has:

  • Specialized education
  • Experience
  • Analytical mindset
  • Possess all the modern financial tools to fulfill your tasks

To achieve all the objectives of financial management, companies resort to various methods:

Forecast Method

The forecasting method assumes that the financial director of the company will keep a constant report on how the market situation changes, what factors in the external environment can directly affect the activity of the company, as well as the forecast of changes in the internal environment through various factors: new management decisions, change of suppliers, increased productivity, etc. It is also the responsibility of the administrator to make forecasts based on the information collected, the forecasts can be both positive and negative, but, nevertheless, it is a reason for the administration to adopt new measures to prevent negative consequences.

Planning Method

The financial director of the company, within the framework of financial management, must plan the financial and economic activities of the company. Planning involves creating calendars and reports, for example planning production volume by day, week, month, and year. Planning of sales volumes should do also by the year. Planning of the main financial indicators of the company also does in a breakdown by month, quarter, and year.

Tax Method

The country’s tax system constantly makes changes in tax legislation: the tax rate, the tax object, its accounting, or individual tax indicators change. All these changes in tax law lead to changes in the financial activities of the company, most of the time tax changes have negative consequences for the company, as the cost of taxes increases. The financial manager is asked not only to monitor this situation but also to introduce new ways and opportunities to reduce the costs of corporate taxes, such as the transition to a different tax regime, the change in the tax base of the company. the company, the use of tax benefits, etc.

Insurance Method

In modern conditions, the risk is an obligatory element of the company’s work in the market. Risk can be expected by a company at any stage of its activity and is associated with completely different fields of activity. The main task of a financial manager is to reduce risk or eliminate it entirely at the stage where it occurs. For this, the insurance method is most often used. If the risk is a financial plan, the manager uses insurance companies as a possible way to cover unforeseen losses. In addition, insurance is necessary in any sector of activity of the company, for example, in production, if more goods are produced than expected, it is necessary to find new sales channels for the goods, so it is important to be insured, etc.

Credit Method

This method allows the company to find additional reserves for its planned activities. The development of the company presupposes a fairly large amount of financial resources, which the company probably does not have. To carry out the planned plans, the financial manager must use the credit method, but in this case, having calculated in advance all the possible results of credit events, as it can significantly affect the financial policy of the company.

Self-Financing Method

The financial manager must follow a policy of self-financing of the company, which is based on the fact that the company must have reserves to guarantee the full continuity of production activities, which will allow it not to resort to loans in the future, which will improve the financial background, in addition to increasing the final financial performance of the same.

Pricing Method

The CFO also deals with pricing issues in companies, one of the main issues on which the level of business sales and their popularity in the market depend. A wrong price will cause many problems: financial difficulties, loss of customers, production stoppages, etc. Financial management is designed to manage the pricing process and stimulate sales of the company’s products.

Fixed Assets Depreciation Method

Financial management studies analyze and manage all financial, economic, and accounting operations of the company. The depreciation and use of the company’s fixed assets, also subject to the financial manager, who has the right and should supervise the process, to establish more efficient terms for the cancellation of fixed assets, and choose the depreciation method, etc.

It is important to take into account the different financial management methods since they give solidity to the economy of the company, in addition, benefits can be obtained in other areas of the same, contributing to the improvement of the company’s results.