Ten Principles That Form the Basics of Financial Management

"Financial management" is the "...acquisition, financing, and management of assets with some overall goal in mind," according to the "Fundamentals of Financial Management," a 2009 textbook by J. Van Horne of Stanford University and John M. Wachowicz Jr., instructor at the University of Tennessee. While the exact wording of the 10 principles varies from author to author, the basic content remains the same. Sound financial management incorporates fundamental actions.

Practice Ethical Behavior

The Institute of Management Accountants lists the principle of ethical behavior as the "...obligation to the public, their profession, the organization they serve, and themselves, to maintain the highest standards of ethical conduct" that include competence, confidentiality, integrity and objectivity.

Don't Risk Without Significant Return

Risking profits for poorly designed projects violates a basic principle of financial management. The capital market theory of financial management involves increased return with less risk. Mathematical formulas calculate the risk.

Design a Realistic Budget

Realistic budgeting involves a master budget and separate capital and operating budgets. Budgets translate the objectives into detailed plans, according to the International Agricultural Research Centers of the World Bank.

Safeguard Against Loss

Financial management requires instituting safeguards against losses. Safeguards vary with individual projects. While safeguards are not foolproof, a set of safeguards must be in place.

Expect Competitive Markets

Projects operate in the middle of the market and face competition from other financial projects. Management must plan for competitive markets in soliciting funding and marketing a product or service.

Locate Efficient Capital Markets

Capital is money placed in an investment. Capital markets involve long-term financing for investments. Location of funds for both short- and long-term investment is required for sound financial management.

Locate Quality Managers

Financial management requires flexibility in dealing with the unknowns. Quality, competent managers handle "a vast range of unknowns," according to Geoffrey T. Boisi, former administrator at J.P. Morgan, Chase and Company and office holder at the Beacon Group investment banking firm.

Monitor and Evaluate Financial Data

Changing interest and exchange rates and also equity and commodity prices requires savvy financial management, according to Charles S. Tapiero in his text "Risk and Financial Management: Mathematical and Computational Methods," published in 2004. Tapiero stresses the importance of using new math and financial data evaluation techniques in financial management.

Vary Risk With the Venture

Analysis of the operational model, market and financial model determine the risk of a venture, according to Jay Ebben, Ph.D., associate professor in the Schulze School of Entrepreneurship at the University of St. Thomas.

Use Cash as a Basis for New Projects

Cash is critical to financial management. New projects based on cash may conflict with current operating projects, but the opportunities for earnings override those concerns.

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About the Author

Lee Grayson has worked as a freelance writer since 2000. Her articles have appeared in publications for Oxford and Harvard University presses and research publishers, including Facts On File and ABC-CLIO. Grayson holds certificates from the University of California campuses at Irvine and San Diego.