Components Of Financial Management Cycle

The financial management cycle is a process that involves several components. According to a source from Coursera, the cycle includes the following steps:

1. Planning and budgeting: During this phase, a company uses past and current financial data to set financial targets, modify objectives, and make changes to the current budget.
2. Resource allocation: This step involves allocating resources to different departments or projects based on their needs and priorities.
3. Operations and monitoring: This component involves managing day-to-day operations, monitoring performance, and making adjustments as needed.
4. Evaluation and reporting: The final step in the cycle involves evaluating performance against targets and reporting results to stakeholders .

Another source from NetSuite provides a more detailed breakdown of the scope of financial management. According to them, financial management encompasses four major areas:

1. Planning: The financial manager projects how much money the company will need in order to maintain positive cash flow, allocate funds to grow or add new products or services, cope with unexpected events, and shares that information with business colleagues.
2. Budgeting: The financial manager allocates the company’s available funds to meet costs such as mortgages or rents, salaries, raw materials, employee T&E, and other obligations.
3. Financial control: This component involves managing cash flow, credit policies, inventory control, and other financial aspects of the business.
4. Financial decision-making: Financial managers help their companies in a variety of ways including but not limited to maximizing profits, tracking liquidity and cash flow, ensuring compliance with regulations, developing financial scenarios based on the business’ current state and forecasts that assume a wide range of outcomes based on possible market conditions, and managing relationships with investors and boards of directors .

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