Entrepreneur And Financial Management Functions

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Entrepreneur And Financial Management Functions

Depending upon the form of organization, an entrepreneur performs the following functions of financial management:

1.    Estimating the amount of capital required. Business firms require capital for (i) purchase of fixed assets, (ii) meeting working capital requirements, and (iii)  modernization and expansion of business. The financial manager makes estimates of funds required for both short-term and long-term.

2.    Determining capital structure. Once the requirement of capital funds has been determined, a decision regarding the kind and proportion of various sources of funds has to be taken. For this, the entrepreneur has to determine the proper mix of equity and debt and short-term and long-term debt ratio. This is done to achieve minimum cost of capital and maximize shareholders’ wealth.

3.    Choice of source of funds. Before the actual procurement of funds, the entrepreneur has to decided the sources from which the funds are to be raised. He can raise finance from various sources like equity shareholders., preference shareholders, debenture-holders, asks and other financial institutions public deposits, etc.

4.    Procurement of funds. The entrepreneur takes steps to procure the funds required for the business. It might require negotiation with creditors and financial institutions, issue of prospectus, etc. The procurement of funds is dependent not only upon cost of raising funds but also on other factors like general market condition, choice of investors, government policy, etc.

5.    Utilization of funds. The funds procured by the entrepreneur are to be prudently invested in various assets so as to maximize the return on investment. While taking investment decision, management should be guided by three important principles, viz., safety, profitability, and liquidity.

6.    Disposal of profits or surplus. The entrepreneur has to decide how much to retain for sloughing back and how much to distribute as divided to shareholders out of the profits of the company. The factors which influence these decision include the trend of earnings of the company, the trend of the market price of its shares, the requirements of funds for self-financing the future programmers an so on.

7.    Management of cash. Management of cash and other current assets is an important takes of financial manager. It involves forecasting the cash inflows and outflows to ensure that there is neither shortage nor surplus of cash with the firm. Sufficient funds must be available for purchase of materials, payment wages and meeting day-to-day expenses.

8.    Financial control. Evaluation of finical performance is also an important function of financial manager. The overall measure of evolution is Return on Investment (ROI). The other techniques of financial control and evaluation include budgetary control, cost control, internal audit, break-even analysis and ratio analysis. The financial manager must lay emphasis on financial planning as well.

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