What is the Goal of Business Financial Management

Webvan was a dot-com company established in 1996 to dominate the grocery delivery market by offering groceries within 30 minutes of an order. However, what turned out to be a promising business vision as a pioneering online grocery turned into the biggest dot-com disaster, which led to its crash in just three years of operation.

Now what made Webvan crash and burn? It was poor financial management.

Their desire for massive, immediate growth while creating infrastructures from scratch led to $1 Billion worth of spending resulting in nearly $830 million in losses in just 18 months. Proper financial planning, appropriating funds, and cutting unnecessary financial costs through organizational efficiency and strategic management could’ve saved Webvan from its downfall. If Webvan is still around today, it would benefit from today’s work-from-home schedule due to the pandemic…i mean just look at instacart!

So what exactly is Financial Management, and how does it affect a business?

According to National Foundation for Credit Counseling (NFCC), in its 2007 study, one in three US small business owners were unsure how they would come up with the money if they were looking to finance a new business. Well, unsurprisingly, this is still the case now – small businesses are closing up their business for mostly the same reason: poor financial management.

Financial management, which is the critical aspect of having a small business, involves planning and monitoring the financial resources of your small business. Its primary goal is wealth maximization.

It affects your business by helping attain the goals and objectives of your business by:

  • Guiding financial planning
  • Assisting in acquiring, appropriating, and investing funds
  • Providing information through financial reporting

Financial management is so crucial that neglecting the knowledge of it can cost you much. That is why some small business owners spend money just to have a finance expert and coach them regarding their finances. You may ask, “they are just small businesses; why spend on something that is not operation-related transactions? It’s because everything in having a company relates to finance! You cannot be a better version of your small business when you can’t improve your financial management—still not convinced?

For example, what if your marketing department wants to hire a big celebrity to advertise the products? Your finance staff, or maybe you, as the business owner, can project the potential increase in sales, the net profit margin from the proposed advertising cost, and its effect on the net value of your small business. And as you can see, most significant decisions are evaluated in terms of financial consequences. That’s why, being a small business owner, who is looking to get ahead of the game, must have good financial management practices.

Learning good financial management will help you with the profitability of your small business and increase its overall value, thus providing economic stability. To get a headstart, use our personal evaluator worksheet duly designed for you in assessing yourself to see if you are considered a financial management pro! Also, check these relevant blogs on cash flow management and building a strategic plan for more insights.

To know more about improving your financial management that can benefit your business, click here to learn more about our finance savvy ceo community and how to level up on your financial management skills.