What Are the Four Elements of Financial Management? - Arrow Research Corporation (2024)

Financial management combines organisation, business objectives, task and innovation management as well as the financial stability and profits of a business, and the list can lead to a convoluted practice. However, it doesn’t have to be as complicated as it sounds. Most financial management plans will break them down into four elements commonly recognised in financial management. These four elements are planning, controlling, organising & directing, and decision making. With a structure and plan that follows this, a business may find that it isn’t as overwhelming as it seems.

The four elements of financial management

Planning

Identify the steps that align with the business or individual objectives.

Have you taken the time to properly establish your business goals and objectives? Do you know what your long-term plans are for yourself, your brand and your staff? Each business goal, whether that’s profit maximation, business growth or expansion of services will require financial management and with each goal, there will be steps to get there. This includes financing, budgeting, allocating roles, customer research, and much more. Take some time to agree upon some measurable steps that get you towards your goal.

Controlling

Ensure each aspect of the organisation is following the established plan

Now you know your steps, do you know that each part of the business is working to achieve the objectives? This isn’t necessarily about cutting costs or determining redundancies, rather it is more about setting appropriate KPIs that can quantifiably lead to the organisational goal. It’s important to make sure any and all staff are aware of the goals and their role in achieving that goal.

Organising and directing

Decide on what resources are necessary to effectively carry out the plan

Resources don’t just refer to material assets and tools. It expands over to staff, roles, budget, funding, technology & software, outsourcing services, and more. You do not want to start implanting a strategy if you don’t even have all the resources at the ready to get the ball rolling.

Decision making

Make choices after investigating all possibilities and options

Once you have established all alternatives and potential plans decision-makers must choose which alternative is feasible and matches with goals and objectives. Decision making will, in fact, coincide with the rest of planning, controlling and organising, as each element will need to be confirmed before moving forward with the plan.

Implementing financial plans

When handling the complexities of financial management, it’s important to break planning down into categories, aligned with business goals. With the chosen plan you can then decide on software and platforms to support your strategy.

Get the right software to support your goals

If you require an online financial management system, the team at Arrow can help. We provide innovative accounting and software solutions designed to support small to medium businesses in profit maximisation, business management and growth objectives. If you would like to know more about our software reach out to our customer service team on 1800 248 265 or download our brochure to learn more.

What Are the Four Elements of Financial Management? - Arrow Research Corporation (2024)

FAQs

What Are the Four Elements of Financial Management? - Arrow Research Corporation? ›

These four elements are planning, controlling, organising & directing, and decision making.

What are the four-four processes of financial management? ›

These four elements include planning, controlling, organizing and directing, and decision-making.

What are the four elements used in financial analysis? ›

In particular, there are four elements within corporate finance that everyone should be mindful of when doing any type of analysis. These four elements are operating flows, invested capital, cost of capital, and return on invested capital.

What are the four decisions in financial management? ›

The first four decisions pertain to long-term financing decisions and are called financing, investment and dividend decisions while the fifth decision is short term decision called working capital decisions. Corporate finance refers to the study of these decisions.

What are the four points explaining the role of financial management? ›

It applies management ethics to the financial resources of a company. This practice controls all the economic operations of an enterprise like utilisation of funds, procurement of funds, payment, accounting, risk assessment and everything related to the cash.

What is the financial order of operations step 4? ›

FOO Step 4 – Emergency Fund

Building a full 3-6 month (or greater) emergency fund is step four of the Financial Order of Operations. An emergency fund is vital to staying on-track financial and paying for unexpected emergency expenses.

Which is the fourth element of the financial system? ›

Considering its nature & importance, financial services are regarded as the fourth element of the financial system.

Which of the 4 basic financial statements have the following key elements operating activities financing activities and investing activities? ›

The cash flow statement is the least important financial statement but is also the most transparent. The cash flow statement is broken down into three categories: Operating activities, investment activities, and financing activities.

What are the elements of financial explain? ›

The 10 elements are: (1) assets, (2) liabilities, (3) equity, (4) investments by owners, (5) distributions to owners, (6) revenues, (7) expenses, (8) gains, (9) losses, and (10) comprehensive income. The 10 elements of financial statements defined in SFAC 6 describe financial position and periodic performance.

What do you understand the four major elements of a financial feasibility analysis? ›

A financial feasibility analysis examines the expenses of starting, operating, and maintaining the business; market and economic feasibility; expected return on investment (ROI); and expected liabilities.

What 4 factors may influence financial decisions? ›

Personal circumstances that influence financial thinking include family structure, health, career choice, and age. Family structure and health affect income needs and risk tolerance. Career choice affects income and wealth or asset accumulation.

What are the scope or elements of financial management? ›

The main components of financial management include financial planning, evaluation of alternative use of funds, capital budgeting, determination of cost of capital, determination of the financial standard for the success of the business, management of income, etc.

What are the elements of financial management scope? ›

In terms of scope, financial management encompasses a wide variety of activities that include forecasting cash flow needs, budgeting, obtaining appropriate capital structure, making investment decisions, managing working capital effectively, and analyzing potential acquisitions or mergers.

What are the key functions of financial management include ______? ›

9 Major Functions of Financial Management
  • Financial Planning and Forecasting. ...
  • Cash Management. ...
  • Determining the Capital Structure. ...
  • Funding Sources. ...
  • Forecasting Cash Flows. ...
  • Income Distribution. ...
  • Investing the Business Capital. ...
  • Financial Command.
Mar 19, 2024

What are the key functions of financial management? ›

The primary function of managing business finances is estimating the amount of capital required. Estimating the capital is essential to determine how much capital a firm requires to purchase fixed assets, modernise and expand the business and meet the working capital requirement.

What is the main aim of financial management? ›

The paramount objective of the financial management is maximising the shareholders' wealth. That is, the basic objective of financial management for a company is to opt for those financial decisions that prove gainful from the point of view of the shareholders.

What is the process of financial management? ›

Financial management processes are, in their simplest terms, plans and procedures which will help an individual, family or institution reach their financial goals. These processes can include a series of steps, such as: Identifying financial goals. Gathering financial and personal information.

What is the fourth 4th step in financial statement analysis? ›

4. Move on to More Advanced Work. Finally, she is ready to move on to more advanced work, which means choosing more complex financial ratios alongside scenario analysis, stress tests, margin of safety calculations, discounted cashflow valuations, and industry or target benchmarking.

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