Financial Management Challenges Essay Sample
Finance is a key component for the success of any business. Availability and deployment of financial resources play a significant role in the success of the business. Since development of trade and commerce increased information and availability of goods to consumers, financial managers ought to make wise decisions regarding management. Depending on the market structure and nature of the business entity, managers will face different challenges along the way. Financial managers make vital decisions to cuts costs and rake in bounty profits after carefully studying cost benefit analysis. Market structure often gives direction on how financial decisions are to be arrived.
Other than guaranteeing enough and expected supply of resources to the business entity, financial management must also ensure maximum utilization of resources. This creates a balance between debt and equity capital (Diebold, Gunther, & Tay, 1998). With optimum approaches shareholders have an assurance on satisfactory earnings. Successful managers, with a proven track record, guarantee safety on investments from shareholders. Essentially such managers have an excellent understanding of market structure and how to deal with emerging issues. It is through shrewd financial planning that managers make informed decisions that push the business forward.
This paper addresses financial management issues in the four different market structures; perfect competition, monopolistic competition, oligopoly, and monopoly. The two major issues addressed are growth and the effect of managing costs on profitability. While looking at the two variables, more emphasis will approach how technology helps financial managers cut costs and improve profitability. The main idea is to identify some of the ways employed by financial managers in addressing market structure related challenges. In some way financial planning utilizes technology to frame financial policies in cash control, borrowing and lending.
Theoretically, a perfect competition market structure is used as a benchmark to analyze significant real market structures. Financial managers ensure that they make competitive decisions that will give them an upper hand against competitors. Since buyers have clear information about products, businesses must edge out competition in the most effective approach. While making decisions, reducing competition highlights strategies on how they can edge out competition and increase market share (Norman, Thisse, & Phlips, 2000). This is achieved through market segmentation and specialization. To create competitive advantage, financial managers provide the business entity with finances required to run daily expenditures. Their main objectives must use minimum resources and achieve maximum results.
Businesses in a monopolistic competition market structure, financial managers work closely with managers in other departments to prevent unfair competition from other businesses. Finances also give leverage on which firms can enter the market. Since profits must be maximized, the entity must ensure specialization and a decision making position in the industry. This calls for efficient utilization of available resources. Entities also ensure that their products are specific in meeting client needs (Militello & Schwalberg, 2003). This market structure is complicated since financial managers have to overlook production costs and focus on maximum profits. While production costs may not be low, the managers have to settle for an optimum for cost. High costs of production often impact negatively on revenue.
Monopolies thrive on the advantage of full market control. They have the luxury of controlling prices and deciding for their advantage. However, financial managers must ensure they protect the industry from entry of other firms into the industry. To prevent competition that may occur due to entry of competitors, businesses use low production costs and sell at reasonable prices. Financial managers must ensure the business has control of important production rights and possibly an important input in the production process. This way, prospective competitors are threatened and withdraw. Ideally, a monopoly thrives perfectly if finance managers make right decisions in due course. The monopolies must grow and capture a national or global picture to attain efficiency in production and sales.
Since in oligopoly only a few firms control the whole industry, it creates a growth challenge when the business entity has no control of the market. The big forms often create a huge challenge that makes smaller firms to use more resources in a bid to remain relevant. For finance managers, who have a heart for money, deploying funds proves a challenging option especially on production and marketing costs. The business entity must devise means to attain market significance with optimum resources. While trying to remain relevant, the business may use lots of financial resources and reduce revenue that would otherwise brighten shareholder accounts. The entity therefore devises financial plans, focusing on marketing to acquire market value and grow over time.
Growth is a very tasking challenge for businesses. While businesses try to cut on costs and increase profitability, firms will find their entities in a dilemma. Both these facets depend on decisions made by finance managers on deployment of funds. If finance managers chose to focus entirely on cutting costs, it may negatively impact on growth in the long run. In the short run, investors will enjoy higher profits. However, growth and maximizing profits ought to be considered alongside each other if firms have to leverage market forces. The challenge of a growing market often comes with specific implications on finances. Expenditure for growth is therefore a compulsive cost that cannot be ignored.
Diebold, F. X., Gunther, T. A., & Tay, A. S. (1998). Evaluating Density Forecasts with Applications to Financial Risk Management.
FINANCIAL MANAGEMENT FOR THE ORGANIZATIONAL SUCCESS: CHALLENGE BEFORE FINANCE MANAGERS INTRODUCTION | GARPH Publication - Academia.edu. (n.d.). Retrieved from http://www.academia.edu/5450710/FINANCIAL_MANAGEMENT_FOR_THE_ORGANIZATIONAL_SUCCESS_CHALLENGE_BEFORE_FINANCE_MANAGERS_INTRODUCTION
Militello, F. C., & Schwalberg, M. D. (2003). Integrity-based financial leadership and ethical behavior: A professional response to meeting the challenges and responsibilities. New Jersey: Financial Executives Research Foundation.
Norman, G., Thisse, J. F., & Phlips, L. (2000). Market structure and competition policy: Game theoretic approaches. Oxford, UK: Cambridge University Press.