Financial management can be defined as both an art and a science of organizing the financial resources of an organization in such a way as to achieve maximum output from the finances that are available to the organization. (Brigham & Ehrhardt, 2004). Financial management is one of the key aspects that each organization including healthcare facilities need to put more emphasis on to increase efficiency. The four elements of financial management There are four fundamental elements that guide the art of financial management (Baker & Powell, 2005) these include:
i) Financial accounting and reporting This element of financial management enables both the financial managers and the general managers to be able to undertake the legal reporting responsibilities by providing the information and data that can be scrutinized. ii) Financial Analysis It is an indicator of the performance of an institution or a company. It can be used to expose potential shortcomings or any weaknesses which the management should put more focus on to be able to meet both short and long term goals of the institution. iii) Financial planning & Budgeting
The first two elements of financial management i. e. financial accounting and reporting and financial reporting, lead to the third element which is financial planning and budgeting. The financial plans and budgets are prepared from the first two tools and will help to guide the company or institution in both the short run and the long run (Brigham & Ehrhardt, 2004). This is an important financial tool that can help to identify any shortfalls or deficits in the internal funds in an institution and thus point to the need for external funding such as debt or equity financing.
iv) Financial Activities These are the activities which a company can explore to be able to make up for any deficit in the internal budget. These sources of financing could include: retained earnings, contributions from donors and governments, equity and debt financing and leases or concessions. Generally acceptable accounting Principles There are several principles that can be considered as acceptable in financial management and these include: i) Consistency-this means that across all time periods, all information that is gathered and presented should be the same.
It holds that a company/institution cannot for example change the way in which they do their inventory without a valid reason for the change being included in the financial statements. ii) Relevance-this stands for the appropriateness of the information that is contained in the financial statements presented. These statements should be able to help one to predict the future financial state of the company or institution. Reliability-an independent party should be able to verify the information that is presented in the financial statements.
The institution must be sure that an independent auditor would come up with the same findings if they were to carry out the same analysis (Brigham & Ehrhardt, 2004). This is a great way for the company or institution to prove that it is transparent and can be trusted. iv) Comparability- this means an institution’s financial statements can relate with similar businesses within the same industry. This enables investors to note the differences within an industry to compare the performance of a company in relation to others in the industry. These generally acceptable principles ensure that all the companies are on the same level playing grounds.
General Financial Ethical Standards The ethical standards that should be closely observed in financial management include: i) Conflict of Interest It occurs as a result of a clash of the private interests of an individual with the interests of the company. As a result of these actions one is unable to effectively carry out the duties due to him/her in the organization. This can also be as a result of an individual or a member of his/her family receiving personal benefits in an improper way due to the position they hold in the organization (De Boers etal, 2007).
Another case that can bring about a conflict of interest is when one at the time of working for a company has associations with a competitor. Thus all staff of a company should report to the executive officers any transaction that is likely to bring about any conflict of interest. ii) Corporate opportunities This deals with the fact that one should always help the company to advance its interests first wherever possible and there should be no use of corporate property or information for improper personal gain. Employees are also prohibited from competing with the company or organization either directly or indirectly.
This ensures that the institution always gets top priority from its employees and at such improves business practices. iii) Compliance and Reporting All the employees of financial institutions should make it top priority to identify any potential problematic issues. They should also seek for help whenever they have doubts about the codes of conduct in the financial institution (De Boers etal, 2007). Any violation of this should lead to subsequent disciplinary action. This standard is important as it helps the institution to identify any potential problem way before they occur if all the employees observe this standard keenly.
iv) Public Disclosure The information in the public domains should not only be fair and accurate, but also timely and understandable and should include the interest of all the key stakeholders in the institution. Information should not be knowingly misinterpreted or omitted or be presented in such a way as to cause others to do the same. This standard helps the institution to win the confidence of the public and more so the shareholders as it displays that their operations are transparent. v) Fair Dealing
Each employee in the institution should strive to be fair in their dealings with all the involved parties and especially the clients, suppliers and service providers as well as employees and competitors alike. This helps the institution to gain goodwill of all the people the deal with and it helps to build the reputation of the institution (Baker & Powell, 2005). Reporting Illegal and Unethical Behavior It is the duty of all employees to report any one that is deemed to be going against these ethical standards.
This reporting can either be internal or external and it should be treated with utmost confidentiality. References Brigham, E. & Ehrhardt, C. (2004). Financial Management: Theory and Practice. Boston Massachusetts: South Western College Publishing. De Boers, P. , Ruud, B. , & Wim, K. (2007). The Basics of Financial Management: An introductory course in finance, management accounting and financial accounting. New York : Routledge Publishers. Baker, K . ,& Powell ,G. (2005). Understanding Financial Management: A Practical Guide. New Jersey: John Wiley & Sons Inc.