Financial resources, just like other resources used in production are scarce and limited. There is therefore a need to put in place various organizational models to facilitate the management of these resources. Sound financial resource management is fundamental for the success of any business. Several concepts that should be applied in the day-to-day running of businesses and long-term strategies have been discussed here-in so as to avoid poor financial management that otherwise leads to business failure.
There is a need to figure out the major financial concerns of any organization. These are: scarcity of resources in the face of expansion in nature and size; managers and business leaders have insufficient knowledge as to the amount of financial resources available and how to maximally utilize these resources for the most output; poor cost estimation techniques and poor implementation of cost-effective techniques, commitment of funds to recurrent expenditure such as salaries leaving minimal funds other operational costs, development and investment; misappropriation of resources leading to waste and poor assessment of organizational programs and workplace inefficiencies.
This issues form the most of organizational problems experienced by most firms. Most managers feel that they could have done better had they had more financial resources after one of this factors go wrong. This is not always the case since more financial resources do not necessarily equate to sound management. There may be minimal correlation between the quality of program delivery and the financial management system that has been put in place. For instance, a firm dealing with agrochemicals needs to actively advertise their product to the farmer as to why he should use their products which does not necessarily imply heavy financial advertising. However, successful organizations must put in place proper evaluation methodologies so as to ensure quality financial management.
Several activities carried out by firms need to be evaluated. First, proper financial management and decision-making needs to be applied in obtaining financial resources. Efforts to sustainably manage resources at this stage highly depend on the firm’s prioritization and its use of additional resources. A look at sources of funding by organizations shows that public firms are funded through but not limited to public appropriations, loans, donations, profits ploughed back and user fees while private firms get their funding from private investments, endowment income, loans and other diverse activities. There has been a recent wave to privatize public firms mainly due to their performance in managing resources. Despite the firms’ ownership, there is a need to source funds from more than one of these sources. This goes without saying that the more sources a firm has, the more complex its financial management process is, since they have different outcome expectations, time schedules and reporting requirements. This, however, has not deterred managers in their quest to fund their organizations from more than one source. This is because multiple sources provide the firm with a hedge against adverse effects of mistreatment by a single source or unavailability of funds from the source. Firms that have unique, high priority and large projects should seek ways of acquiring special finding sources so as aptly support these projects. These special sources are assured by obtaining a resource commitment from a principal funding partner which is a very dependable source for core and continuing project funding. Temporary or ‘softer’ sources allow experimentation and carrying out of non-core business activities hence they ensure the firm is not held back when major projects are being carried out. No single ideal ratio can be determined but rather each firm should determine its core to non-fundamental resource balance.
Secondly, critical decision making in financial management should be ensured in keeping track of financial resources. Management should effectively carry out the activities of planning, staffing, control and leadership after understanding the financial constraints the firm is currently facing. Therefore, it is incumbent upon them to design a viable system that ensures staff knows the amount of resources available for appropriation to prevent misuse of resources. A system to determine how much there was at the beginning of a trading period, how much has been spent so far, what the money was spent on and how much is left should be put in place to ensure that managers remain accountable to their funding partners. This can be resolved by installing an accounting system. Be it an automated or manual recording system, the system needs to produce accurate and timely results so that critical decisions can be made in good time. A number of software systems are available which are deemed as more efficient and cost-effective.
Thirdly, it is vital to predict organizational costs since available resources for each project are finite. The need and benefits accrued from any expenditure should not be undermined by the costs incurred. Therefore, budgeting is necessitated in the use of resources so as to ensure proper planning and management of resources. This tool is highly successful when combined with accounting methods so as determine expected costs and returns. No matter how well endowed an organization is, there are always constraints as to the amount of resources that can be committed to a specific activity. Budgeting comes in handy to determine the resources needed and how they will be appropriated. This also provides managers with a benchmark tool whereby during the span of the period, the number of achievements can be evaluated against expenditures, hence enabling managers to keep within assigned allocation limits so as to accomplish the set objectives successfully. Budgets can be subdivided by the planned activities or via a recognized accounting system. However, the two systems can be integrated. This integrated approach enables firms to draw a cost-benefit analysis while at the same time design different approaches that can be implemented to come up with a similar end-result. The most advanced budgeting technique is however the budgeting cycle. It can be represented by: Resource acquisition where money is obtained, then a disbursement program is carried out, an accounting strategy is implemented, followed by auditing so as to locate errors; then a report is generated which if satisfactory more funds can be requested for an ongoing program. This cycle continues through the resource acquisition phase and is carried out all over again.
Fourthly, there is a need to maintain a balance as to how resources are used in the organization. This is since some organizations may commit too much funds to activities such as staff salaries and salary support supported by the central management yet it is not provided in the budget leading to neglect of other operational costs. This leads to a budget cut. This implies that fewer resources are available in meeting needed expenditure such as travel and any other office miscellaneous costs. Inflation should also be catered for in drawing a balance in the use of funds. Therefore, it is imperative for managers to keep a balance between salaries and operating costs. If this problem crops up, managers can resolve this by reducing staff so as to increase expense allocations since the firm shall be having a bloated staff who have nothing to do due to scarcity of resources that are highly stretched. This can however have a direct impact on product delivery. The market previously reached may have to reduce leading to a decline in the sales. Some countries outlaw the trade-off between personnel expenditure and other operating costs. In these situations it is vital to seek for an alternative source of funding. However, reallocation is the easiest and most-straight-forward way of ensuring the firm stays afloat. Other techniques such as establishing user fees and sale of the firm’s publications can be used to raise extra finances. This can have a negative impact if the targeted audience has no money to pay for this service. There is no ideal salary-expense ratio but it rather depends on the firm’s diverse staff such as professionals versus unskilled labor and the number of operational costs determined by the firm’s geographical location and mode of program delivery. However, if salary costs are projected at around 75%, this is s a fair projection that there shall be sufficient finances left over to meet operational costs.
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