Financial Management: 3 Big Decisions You Should Know

The backbone of every successful business – Financial management. Whether you’re running a small startup or managing a Fortune 500 company, you have to be smart in making decisions and that could only be possible if you have concreate knowledge of financial management. After all it’s all about management by the way.

But keep in mind: Financial management isn’t about counting cash or balancing budget. It’s actually about making major three key decisions that shape the future of your business:

  • The investment Decision: Where should you put your money?
  • The financing Decision: How will you fund your business?
  • The asset management Decision: How will you manage what you own?

Key takeaways

The investment decision is about balancing what you need with what you can afford. It’s not just about spending money—it’s about spending it wisely.

The financing decision is about finding the right balance between debt and equity—and making sure you have enough cash to keep the lights on.

Asset management is about making sure your resources are being used effectively. It’s not just about owning assets—it’s about making them work hard for you.


The Investment Decision: Where Should You Put Your Money?

Imagine you’re building a business. The first question you need to answer is: What do I need to make this business successful?

This is the investment decision. It’s all about figuring out:  

  • What assets do you need? (Think equipment, inventory, cash, etc.)  
  • How much should you invest in each?
Why it matters?

The investment decision is huge because it directly impacts your company’s value. If you invest wisely, you’ll grow. If you don’t, you’ll struggle. Let’s say you run a bakery. You need to decide:  

  • Should you buy a new oven to increase production?  
  • How much cash should you keep on hand for emergencies?  
  • Should you expand your inventory to offer more products?  

These are all investment decisions. You also need to think about disinvestment. If that old oven is costing you more in repairs than it’s worth, maybe it’s time to sell it and buy a new one.


The Financing Decision: How Will You Fund Your Business?

Now that you’ve decided what to invest in, the next question is:Where will the money come from?

This is the financing decision. It’s all about figuring out:  

  • Should you use debt (loans) or equity (selling shares)?
  • What’s the right mix of debt and equity for your business?
The way you finance your business can make or break it. Too much debt, and you’ll drown in interest payments. Too much equity, and you’ll lose control of your company.

Let’s go back to your bakery. You need $50,000 to buy that new oven and expand your inventory. Here are your options:

  • Take out a loan: You’ll have to pay interest, but you’ll keep full ownership of your business.  
  • Sell shares: You’ll get the money without owing interest, but you’ll have to share profits (and decision-making) with investors.

Which one is better? It depends on your goals. If you want to keep full control, a loan might be the way to go. If you’re okay with sharing ownership, selling shares could work.


The Dividend Dilemma 

If you’re making profits, you’ll also need to decide: Should I pay dividends to shareholders or reinvest the money back into the business?


  • Paying dividends makes shareholders happy.  
  • Reinvesting can fuel growth. 

It’s a tough call, but it’s all part of the financing decision


The Asset Management Decision: How Will You Manage What You Own?


Okay, so you’ve invested in the right assets and figured out how to finance them. Now what? This is where the asset management decision comes in. It’s all about managing your assets efficiently to maximize their value. Even the best investments can go to waste if they’re not managed properly. You need to make sure your assets are working for you, not against you.


Back to your bakery:  

  • Cash: Are you keeping enough on hand for emergencies?  
  • Inventory: Are you stocking the right amount of flour and sugar? Too much, and it’ll go bad. Too little, and you’ll run out.  
  • Equipment: Are you maintaining your oven and other tools to avoid breakdowns?

Focus on Current Assets

While fixed assets (like your oven) are important, the financial manager’s main focus is usually on current asset like cash, inventory, and accounts receivable. Why? Because these are the assets that keep your business running day-to-day.


Putting It All Together: The Big Picture


Let’s tie it all up with a real-life scenario.  


Imagine you’re launching a tech startup. Here’s how the three decisions might play out:  


  • Investment Decision: You decide to invest in software development, office space, and hiring a small team.  
  • Financing Decision: You take out a small loan to cover initial costs but also sell shares to investors to avoid too much debt.  
  • Asset Management Decision: You keep a close eye on your cash flow, manage your inventory of tech supplies, and ensure your team is using resources efficiently.

By nailing these three decisions, you set your business up for success.


Final thoughts

Financial management might sound complicated, but at its core, it’s about answering three simple questions:  

  1. Where should I invest? 
  1. How will I fund it?
  1. How will I manage it?

Whether you’re running a bakery, a tech startup, or a multinational corporation, these decisions are the foundation of your business.


So, what’s your next move? Are you ready to make smarter investment, financing, and asset management decisions? Let’s chat in the comments—I’d love to hear your thoughts! 👇

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