Venstone AG - The Role of Financial Management in The Efficiency of Financial Performance Financial management is a regulated and continuous process that includes many actions such as planning, regulation, guidance, and control of how to use the current and future financial sources. It means applying public financial principles on various resources of the organization. Financial management objectives It is primarily aimed to achieve the following points: Increase gross profit margin It refers to the profit gained by the company's sales from the cost of the goods sold. This indicates to the efficiency of using the available raw materials, fixed assets, human resources and others, and making a profit through them. It is noted that this margin varies and it is better to be higher. Increase operating profit margin This margin clarifies the efficiency of the company to manage the profits resulting from the project through when comparing the ebitda and interest. It is worth mentioning that the operating profit margin should be lower than the gross margin, and it includes management and sales costs, material and operating costs. Increase net profit It is after deducting all financial obligations including taxes of profits that the institution has gained. It indicates to the efficiency of the financial management of the institution. Reduce costs Making profit is not only managing the profits of sales but also taking into consideration the reduction of costs. If the costs are higher than the profit margin, this will affect the institution position against competitors. Many institutions try to reduce costs by adopting less expensive plan or service providers to reduce the bills of electricity, water, internet and others.
Increasing the market share Institutions seek to increase their market share; the market share gives a general idea of institution position in the market and among competitors. They tend to enlarge its market by using other categories of customers, reducing prices and advertising. It is calculated by counting the company's sales during a certain period and dividing by the total sales during the same period.
Successful financial management The following ensure the success of personal or institutional money management: Write long-term financial objectives such as debt disposal or early retirement, then short-term ones such as increasing income or reducing costs in institutions, and arranging points according to their priority taking into consideration that goals like saving for retirement is important during the achievement of other objectives. Set a budget and ensure commitment It is one of the most important tools that ensure financial success, it means balancing costs with revenue to achieve the desired goals. Set a budget is essential, because it ensures that there is enough money to achieve the necessary things.
Debt repayment Debt holds achieving the financial goals. Instead of paying low sums of more than one debt at the same time, it is possible to pay all the money to one debt at first, then pay other debts. Reduce costs The profit will be high as long as the costs is reduced and the debt is disposed. Each project has two types of costs:
Fixed costs: Such as invoices, rent, employees' benefits, they have to be paid and difficult to be reduced.
Variable costs: Such as using free software instead of paid ones, they are a variety of fees that can be controlled and reduced.
In-house financial management It is important as financial management in projects with the same principles. There are some points that help in saving money and make smart financial decisions:
Distinguishing between needs and desires: Setting priorities can help achieving preplanned goals.
Managing emergency expenses: They are unregulated expenses, such as training fees, car license fees, fines, etc., and saving money in an account will be useful in such cases.
Keeping up-to-date: Budget shout be adjusted to meet new needs, and avoid errors. The financial plan should be developed always according to changing circumstances.