1. Establishing Organizational Goals and Objectives. Establishing goals and objectives is an important management task. A goal is an end state that the organization wants to achieve. Objectives are specific statements detailing what the organization intends to accomplish within a certain period of time. If goals and objectives are not specific and measurable, they cannot be translated into costs, and financial planning cannot proceed. They must also be realistic. Otherwise, it may be impossible to finance or achieve them.
2. Budgeting for Financial Needs. A budget is a financial statement that projects income and/or expenditures over a specified future period of time. Once planners know what the firm's goals and objectives are for a specific period of time - say, the next calendar year- they can estimate the various costs the firm will incur and the revenues it will receive. By combining these items into a companywide budget, financial planners can determine whether they must seek additional funding from sources outside the firm.
Usually the budgeting process begins with the construction of individual budgets for sales and for each of the various types of expenses: production, human resources, promotion, administration, and so on. Budgeting accuracy is improved when budgets are first constructed for individual departments and for shorter periods of time. These budgets can easily be combined into a com panywide cash budget. In addition, departmental budgets can help managers monitor and evaluate financial performance throughout the period covered by the overall cash budget.
Most firms today use one of two approaches to budgeting. In the traditional approach, each new budget is based on the dollar amounts contained in the budget for the preceding year. These amounts are modified to reflect any revised goals, and managers must justify only new expenditures. The problem with this approach is that it leaves room for the manipulation of budget items to protect the (sometimes selfish) interests of the budgeter or his or her department.
This problem is essentially eliminated through zero-base budgeting.
Zero-base budgeting is a budgeting approach in which every expense must be justified in every budget. It can dramatically reduce unnecessary spending. However, some managers feel that zero-base budgeting requires too much time-consuming paperwork.
3. Identifying Sources of Funds. The four primary sources of funds are sales revenue, equity capital, debt capital, and the sale of assets. Future sales generally provide the greatest part of a firm's financing.
Sales revenue is the first type of funding.
The second type of funding is equity capital, which is money received from the sale of shares of ownership in the business. Equity capital is used almost exclusively for long-term financing. Thus it might be used to start a business and to fund expansions or mergers. It would not be considered for short-term financing needs.
The third type of funding is debt capital, which is money obtained through loans. Debt capital may be borrowed for either short- or long-term use.
The fourth type of funding is the sale of assets. A firm generally acquires assets because it needs them for its business operations. Therefore, selling assets is a drastic step. However, it may be a reasonable last resort when neither equity capital nor debt capital can be found. Assets may also be sold when they are no longer needed.
MONITORING AND EVALUATING FINANCIAL PERFORMANCE
It is important to ensure that financial plans are being implemented and to catch minor problems before they become major problems. Accordingly, the financial manager should establish a means of monitoring and evaluating financial performance. Interim budgets (weekly, monthly, or quarterly) may be prepared for comparison purposes. These comparisons point up areas that require additional or revised planning.

Outside Sources of Financing
Financial management consist of all those activities that are concerned with obtaining money and using it effectively. Effective financial management involves careful planning. It begins with a determination of the firm's financial needs.
Money is needed to start a business. Then the income from sales could be used to finance the firm's continuing operations and to provide a profit.
But sales revenue does not generally flow evenly. Income and expenses may very from season to season or from year to year. Temporary financing may be needed when expenses are high or income is low. Then, the need to purchase a new facility or expand an existing facility may require more money than is available within a firm. In these cases the firm must look for outside sources of financing. Usually it is short- or long-term financing.
1. Short-term financing is money that will be used for one year or less and then repaid.
There are many short-term financing needs. Two deserve special attention. First, certain necessary business practices may affect a firm's cashflow and create a need for short-term financing.
Cashflow is the movement of money into and out of an organization. The ideal is to have sufficient money coming into the firm, in any period, to cover the firm's expenses during that period. But the ideal is not always achieved. For example, a firm that offers credit to its customers may find an imbalance in its cash flow. Such credit purchases are generally not paid until thirty or sixty days (or more) after the transaction. Short-term financing is then needed to pay the firm's bills until customers have paid their bills. Unanticipated expenses may also cause a cash-flow problem.
A second major need for short-term financing that is related to a firm's cash-flow problem is inventory.
Inventory requires considerable investment for most manufactures, wholesalers, and retailers. Moreover, most goods are manufactured four to nine months before they are sold to the ultimate customer. As a result, manufacturers often need short-term financing. The borrowed money is used to buy materials and supplies, to pay wages and rent, and to cover inventory costs until the goods are sold. Then, the money is repaid out of sales revenue. Additionally, wholesalers and retailers may need short-term financing to build up their inventories before peak selling periods. Again, the money is repaid when the merchandise is sold.
2. Long-term financing is money that will be used for longer period than one year. Long-term financing is needed to start a new business. It is also needed for executing business expansions and mergers, for developing and marketing new products, and for replacing equipment that becomes obsolete or inefficient.
The amounts of long-term financing needed by large firms can be very great.

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