Practical financial management is a term that is used to identify the core group of financial management tools relevant to effectively implementing the financial policies and procedures of a given company or other type of organization. The focus is on making sure that all parties involved in managing the accounting processes, keeping within departmental budgets, and making purchasing decisions on behalf of the entity are well-versed in how to go about managing the resources placed at their disposal. The concept of practical management has to do with the fact that each individual who is engaged in making financial decisions will have an understanding of how to go about the process in a manner that is in the best interest of the organization.
The scope of financial management tools used as part of the practical financial management process may vary somewhat, based on the specific circumstances surrounding the organization. Some of the tools used by larger corporations may be less appropriate for a small business, and vice versa. At the same time, the nature and arrangement of different financial management techniques will also be influenced by governmental regulations that the business must comply with in order to continue operations. In addition, industry standards may also have some impact on exactly how a company chooses to set up financial policies and strategies, and even how the procedures used to carry out those policies are structured.
The goal of practical financial management is to make the best possible use of all financial resources within the possession of the organization. This typically means making sure that all financial records are maintained used generally accepted accounting principles, budgets for each department or division are realistic, and that the company is organized with a series of checks and balances that helps to minimize the possibility of waste of all resources. Practical financial management requires detailed documentation for all financial decisions made, careful analysis of what is happening as the result of those decisions, and a strong sense of accountability on the part of everyone with authorization to utilize some portion of the company’s financial resources in any form.
Without some form of practical financial management in place, organizations are highly likely to expend financial resources without achieving an efficient return for those expenditures. By creating a system that requires due diligence for each decision made, maintaining proper accounting records, and making sure that all allocations of financial resources are calculated to provide what is needed to operate efficiently but avoid encouraging waste in any area of the operation, the company is much more likely to enjoy greater benefit from its resources. Along with day-to-day practical financial management, periodic reviews can often identify ways to enhance financial policies and procedures so the company can continue to remain fiscally responsible while still adapting to any shifts in the industry or in the economy in general.