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Financial management of company

A certain amount of funds is necessary to start any business. The amount of funds depends primarily on the form of business, elected by the new entrepreneur (a company must meet the requirement of minimum registered capital while natural persons – sole traders do not need to fulfil such an obligation). The amount of initial investment necessary (in particular in manufacturing companies) and initial inputs of goods or materials have a significant impact on the volume of funds necessary to start a business.

The financial management of a company can be understood as everything related to a company’s cash flow, assets and resources. Money means in particular cash, deposits in banks, securities, duty stamps, etc. Assets mean, from the financial perspective, everything a company has acquired, owns and uses to conduct business (assets reported in the balance sheet and divided according to the basic division to non-current assets, inventories, accounts receivable, money…)

The resources used to acquire a company’s assets stand against its assets (liabilities reported in the balance sheet). Resources are divided into own resources (contributions from owners, economic results, i.e. net profit, depreciations, etc.) and borrowed resources (in particular loans, bank credits, reserves, etc.).

For new entrepreneurs, own resources, especially contributions from owners are the main source of funding. Since new entrepreneurs only begin conducting business, and they do not have a business history or sufficient assets to use as security for borrowed funds (especially bank credits), their access to borrowed resources is limited to a large extent.It is therefore very important to have the entire financial system of a company thoroughly planned, responsibly established and well managed from the start. A finance department led by a finance manager is in charge of all that. A finance department in a company usually takes care of cash flow planning and management, investment management, most advantageous sources of funding and oversight of the financial standing. It also covers areas such as accounting, controlling (overseeing the expense ratio and efficiency of a company’s processes and their results) and reporting (managerial outcomes for the company owners and/or for the parent company comparing the estimated and actual indicators defined in a manner allowing for quality decision-making on operating matters as well as further strategic decision-making on the level of the top management). From the perspective of economic results and while perceiving the company as a living, functioning and continually developing organism, financial management is extraordinarily important.

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