For example, management and control
of production may be delegated to a man who is specialist in the
techniques, procedures, and methods of production. We ma designate
him “Production Manager'. So is the case with other branches of
management, i.e., personnel, finance, sales etc.
incharge of the finance department may be called financial manger,
finance controller, or director of finance who is responsible for the
procurement and proper utilisation of finance in the business and for
maintaining co-ordination between all other branches of management.
Importance of finance cannot be over-emphasised. It is,
indeed, the key to successful business operations. Without proper
administration of finance, no business enterprise can reach its full
potentials for growth and success. Money is a universal lubricant
which keeps the enterprise dynamic-develops product, keeps men and
machines at work, encourages management to make progress and creates
values. The importance of financial administration can be discussed
under the following heads:-
(i) success of
Promotion Depends on Financial Administration. One
of the most important reasons of failures of business promotions is a
defective financial plan. If the plan adopted fails to provide
sufficient capital to meet the requirement of fixed and fluctuating
capital an particularly, the latter, or it fails to assume the
obligations by the corporations without establishing earning power,
the business cannot be carried on successfully. Hence sound
financial plan is very necessary for the success of business
(ii) Smooth Running of an
Enterprise. Sound Financial
planning is necessary for the smooth running of an enterprise. Money
is to an enterprise, what oil is to an engine. As, Finance is
required at each stage f an enterprise, i.e., promotion,
incorporation, development, expansion and administration of
day-to-day working etc., proper administration of finance is very
necessary. Proper financial administration means the study, analysis
and evaluation of all financial problems to be faced by the
management and to take proper decision with reference to the present
circumstances in regard to the procurement and utilisation of funds.
(iii) Financial Administration Co-ordinates
Various Functional Activities. Financial
administration provides complete co-ordination between various
functional areas such as marketing, production etc. to achieve the
organisational goals. If financial management is defective, the
efficiency of all other departments can, in no way, be maintained.
For example, it is very necessary for the finance-department to
provide finance for the purchase of raw materials and meting the
other day-to-day expenses for the smooth running of the production
unit. If financial department fails in its obligations, the
Production and the sales will suffer and consequently, the income of
the concern and the rate of profit on investment will also suffer.
Thus Financial administration occupies a central place in the
business organisation which controls and co-ordinates all other
activities in the concern.
(iv) Focal Point of
Decision Making. Almost, every
decision in the business is take in the light of its profitability.
Financial administration provides scientific analysis of all facts
and figures through various financial tools, such as different
financial statements, budgets etc., which help in evaluating the
profitability of the plan in the given circumstances, so that a
proper decision can be taken to minimise the risk involved in the
(v) Determinant of Business Success.
It has been recognised, even in
India that the financial manger splay a very important role in the
success of business organisation by advising the top management the
solutions of the various financial problems as experts. They present
important facts and figures regarding financial position an the
performance of various functions of the company in a given period
before the top management in such a way so as to make it easier for
the top management to evaluate the progress of the company to amend
suitably the principles and policies of the company. The financial
manges assist the top management in its decision making process by
suggesting the best possible alternative out of the various
alternatives of the problem available. Hence, financial management
helps the management at different level in taking financial
(vi) Measure of Performance. The
performance of the firm can be measured by its financial results,
i.e, by its size of earnings Riskiness and profitability are two
major factors which jointly determine the value of the concern.
Financial decisions which increase risks will decrease the value of
the firm and on the to the hand, financial decisions which increase
the profitability will increase value of the firm. Risk an
profitability are two essential ingredients of a business concern.