Sample Business Studies Paper on Financial Management Report

Sample Business Studies Paper on Financial Management Report

1.0 Introduction

For a business to succeed in a business environment, it must practice financial management (Korir , 2016). Financial management plays a key role in ensuring the business is compliant with regulations within the business jurisdictions. Financial management aims to maximize the shareholders’ wealth by investing the generated capital effectively and efficiently (Pandey, 2015). Besides, financial management ensures business operations are run smoothly and aids in creating a long-term vision of the company, which yields insights on maximizing profits and liquidity (Mueller, 2016). Besides, financial management is beneficial to a business in that it promotes financial transparency, improves company planning and development of strategies, improves compliance, boosts growth measurement, and reduces errors (Korir , 2016). This report entails financial advice to a startup on the different approaches to make effective decisions, the financial management principles to adhere to, and their impact on business in both short-and-long-term.

2.0 Effective Decision-making

In every business, a manager or an owner must make decisions. Before making any key decision, a business owner must know the different approaches (Korir , 2016). The different approaches that enhance effective decision-making are autocratic decision making, participatory decision making, consensus decision making, and democratic decision making (Mueller, 2016). All these decision-making approaches can be used in the formal and informal organization structure.

2.1 Formal Organization Structure

The formal organization structure is based on hierarchy, and it aims to achieve the organization’s objectives (Korir , 2016). The relationship between employees in the organization is prescribed informal organization by allowing teamwork and working together to better the company’s productivity (Stormer & Meier, 2012). In this organization, the efficiency of operations is achieved by specialization and division of labor. It majorly concentrates on the jobs to be done, and rigid procedures and rules bind it (Korir , 2016).

2.2 Informal Organization Structure

In contrast, the informal organization structure is developed based on emotions, dislikes, likes, personal attitudes, and prejudices. The organization is formed on the grounds of social and personal relations (Korir , 2016). It is not formal or formed based on rules and regulations; instead, it is natural. In addition, the informal organization structure allows employees engagement, and they take part in decision making compared to a formal structure based on regulations and procedures (Pandey, 2015). In the startup case above, the owner should make key decisions regarding investment and production. The owner must understand the optimal firm size, the assets they are supposed to acquire, and the assets to be added or eliminated (Stormer & Meier, 2012).

2.3 Investment Decisions

Investment is the art of increasing asset acquisition through assigning resources that assist in profit earnings. With technological development and the rise of the pandemic, e-commerce is the best business model to pursue (Korir , 2016). However, several factors need to be considered before making investment decisions (Stormer & Meier, 2012). As an owner, you must think about the return on investment, the risk involved, the investment period, liquidity, volatility, and the budget in place to open an e-commerce business (Easton, 2016). The return on investment measures the benefits gained from the investment and must be above the market’s inflation rate and interest rate. Also, the owner must measure the risk of investing in a business if there is a rise in unforeseen circumstances (Pandey, 2015). The higher the return, the higher the risk (Korir , 2016). For instance, e-commerce such as Amazon it’s a success. It is attributed to their strategic and effective decision-making. The company analyzes the risk involved and the return on investment before investing in a business idea (Pandey, 2015). Also, e-commerce should analyze the short-term, medium, or long-term investment period. Besides, the business owner should consider liquidity (Korir, 2016). The business should have allocated capital that is easily converted to cash. The owner should not invest fully in fixed assets forgetting to hold capital allocated for liquidity.

2.4 Business Goals

However, for investment decisions to be effective, a business owner must have concrete business goals meeting short, medium, and long-term needs (Pandey, 2015). Businesses, especially startups, must-have business goals since they assist them in creating accurate plans. For e-commerce, the short-term goals are the company must ensure it manages its operating costs properly and strategically (Easton, 2016). Proper management ensures the investment costs are reduced over time, and the aim is to produce high-quality products and meet consumer needs. In addition, the business aims at establishing business relationships by increasing engagement with online users (Easton, 2016). The company should also aim to provide a unique customer experience by offering stand-out products and services that appeal to their tastes and preferences (Easton, 2016). The aim of producing stand-out products is to gain customer loyalty quickly to influence business growth (Gilbert, 2017). A new business or organization must adapt to business operations in every business environment. They must ensure their short-term success is not affected by market risk; instead, they should promote and retain customer connections that boost revenue streams (Gilbert, 2017).

In the case of financial management, the business should have both short and long-term goals. Financial stability is of the essence in a business, especially to attain its long-term goals (Pandey, 2015). However, for a business to achieve long-term goals or have financial stability, it must have short-term goals. The short-term goals of e-commerce are it should clearly state revenue goals(Easton, 2016). The revenue goals should be achievable, and the period the company aims to achieve them (Mueller, 2016). Moreover, the business should analyze the competition in the market comparatively, determine areas to reduce cost, have a sustainable method of managing debt, and improve financial margins (Gilbert, 2017). The aim of creating a comparative competition analysis is to enable the business to adjust its pricing in the market. The startup should also focus on areas such as overhead expenses to promote the company’s profitability.

2.5 Product Manufacturing

Businesses, especially startups in e-commerce, should analyze the different forms of producing their products and the impact they have on costs (Lusardi, 2012). The best business model for a manufacturing e-commerce startup is manufacturing its products (Easton, 2016). Manufacturing is a holy grail of models, even though it does not satisfy every niche (Gilbert, 2017). In our case, I would suggest that the startup manufacture their products after analyzing key elements such as the budget they have, the quality control amount they wish to maintain, their production capabilities, and future goals (Lusardi, 2012). Businesses that manufacture their products incur the lowest cost in design and unit production, indicating huge profit and growth potential (Easton, 2016). Also, an e-commerce that manufactures its products can create a solid brand and enhance customer loyalty. In addition, the startup can have full control over overproduction and eliminate problems related to management issues (Gilbert, 2017). Despite the advantages and benefits incurred from startups manufacturing their products, the business can also experience drawbacks such as increased expenses such as equipment purchase and time-consuming (Easton, 2016).

3.0 Financial Sustainability

Furthermore, a business must be sustainable by having effective financial strategies (Murugi, 2019). Financial sustainability is a business’s ability to begin, grow and maintain its operations in the market under a limited budget, which boosts the company’s financial stability in the short and long term (Murugi, 2019). For a firm to be sustainable in a market, it must access capital. Capital ensures business operations are run smoothly (Estebban, 2015). For instance, large corporations such as Amazon ensure they have large amounts of capital, boosting their operations and increasing revenue. For a business to grow, it must invest in generating revenue (Estebban, 2015). In the case of the startup e-commerce, it must have an initial startup capital that ensures the firm’s operations are running smoothly and support business growth.

There are various ways to access capital through self-finance, public listing in an exchange market to increase the company’s capital, debentures, bonds, angel investing, or loans. In the case of an e-commerce startup, they should not use net present value in their proposal to attract investors (Murugi, 2019). Net present value is not perfect, and it’s not a distinctive metric to rely on because it is difficult to determine a discount rate to use, the cost of capital, and the net present value does not equate to accurate investment size (Gilbert, 2017).

4.1 Profitability

Besides, a company’s main goal is profitability (Murugi, 2019). The company aims to generate more revenue than costs incurred. If the company experiences lower profitability, its cash flow can be stretched and stressed (Estebban, 2015). Low profitability is expensive to an organization and leaves no room for reinvestment which can ultimately affect the company’s financial sustainability (Murugi, 2019). Also, profits can be high, which might increase the chances of reinvesting (Gilbert, 2017). However, higher profits are dangerous because they can either increase the number of competitors to stabilize the market demands or cause zero economic profits in the long run (Murugi, 2019). The high profits can also lead to undercutting by competitors and might lead to price wars, affecting financial stability (Easton, 2016). In addition, a business can determine its profitability by using a profitability ratio known as net profit margin (Murugi, 2019). The net profit margin is beneficial because it lets the company know if it is generating enough profits after containing overhead and operating costs (Estebban, 2015).

3.2 Reporting

To have sustainable financial growth, it must have a systematic financial review and reporting strategy (Easton, 2016). Reviewing and reporting financial data enables the company to know the negative trend or find ways to increase their revenue (Estebban, 2015). Financial reporting is also beneficial to the company because it can acquire capital support (Murugi, 2019). The reporting will also assist the company in selling the business or merging or acquiring other businesses.

3.3 Planning

Once the startup owner has determined the e-commerce short-and-long-term goals, investment, and manufacturing decisions, the company can then develop a budget. A budget is important because it enables the business to achieve its targets (Murugi, 2019). The budgets are critical, especially in a business, because they are powerful tools of profit maximization and attaining economic growth (Murugi, 2019). The budgets provide a concrete structure for success by breaking down capital use into months, weeks, and yearly targets (Hamilton, 2015). In the case of the startup e-commerce, the financial planner can help the owner develop a budget.

The financial planner will make the budget realistic by determining the financial implications of business decisions, the unrealistic operational spending targets, the financial imbalances, and emotional spending (Murugi, 2019). Besides, once the business has commenced, the owner needs to collect financial data to aid in knowing both the financial performance and the position of the e-commerce. Some vital types of data to be collected by the startup are assets, liabilities, equities, and capital (Mueller, 2016). Assets are items the business owns and range from real property, tangible or intangible (Hamilton, 2015). The tangible assets include cash, inventories, and equipment (Easton, 2016). On the other hand, Liabilities are the company’s financial obligations, such as short-and-long-term debts. Other elements included in liabilities are creditors, accounts payable, and wages (Hamilton, 2015). Also, equities are the company’s value, and in some cases, they are negative due to liabilities being more.

4.0 Conclusion

In summary, business growth and development require strategic financial management. The firm should make an effective investment, manufacturing, and financial sustainability decisions. Before investing in a business, the business owner should conduct a comparative market analysis by determining market volatility, liquidity, return on investment, and risks involved. Besides, manufacturing is a holy grail in e-commerce (Mueller, 2016). A firm should produce its products to promote its brand, overproduce, and reduce costs related to operations and distribution of goods. Once a firm has known its manufacturing and investment needs, it is important to develop a financial budget. A financial planner can prepare the budget by analyzing key elements such as implications of business decisions, unrealistic operational spending targets, financial imbalances, and emotional spending. Lastly, financial sustainability is the ability of a firm to use its limited budget in commencing, producing, and managing its business operations in both short-and-long-term. Financial sustainability promotes financial stability, and it is promoted by profitability, reporting of finances, and strategic planning. The firm’s profitability can be determined by using net profit margins, which show the amount of profit generated once overhead and operating costs are contained.

 

 

5.0 References

Easton, P., 2016. Financial reporting: An enterprise operations perspective. Journal of Financial Reporting, 1(1), pp.143–151.

Estebban, O., 2015. Conducting a pricing and profitability diagnostic. Pricing and Profitability Management, pp.23–40.

Gilbert, A., 2017. Improve your financial decision making, Basingstoke, United Kingdom: Macmillan Education Ltd.

Hamilton, L., 2015. Ebusiness & eCommerce.

Korir, M., 2016. Contents: European Financial Management 2/2016. European Financial Management, 22(2), pp.169–169.

Lusardi, A., 2012. Numeracy, financial literacy, and financial decision-making.

Mueller, W.J., 2016. Hospital Financial Management. Financial Management, 1(1), p.58.

Murugi, R., 2019. Financial Accountability & Management, 35(1), pp.115–117.

Pandey, I.M., 2015. Financial management, New Delhi, Delhi: Vikas Publishing House PVT LTD.

Stormer, H. & Meier, A., 2012. Ecustomer Relationship Management. eBusiness & eCommerce, pp.203–246.