What is the relationship between financial management and company revenue?
Getting financial balance, market stability and consistent growth is a big challenge for any business. In this sense, the management of financial resources can be an ally to achieve these advances in the company.
Thinking about it, did you know that company billing is an essential element for efficient financial management? These two concepts intersect in the day to day of the responsible sector of the company. Therefore, it is essential to understand the relationship between them.
In this post, you will know what is meant by billing and financial management of the company and how these terms are related.
Let’s go?
What is financial management?
Before understanding the relationship between financial management and company billing, it is important to be clear about each of these concepts. Financial management is a set of tools, strategies and actions that allow you to analyze, plan and control a company’s finances.
Through it, managers can understand the current financial situation of the organization, considering its profit margin, operating costs and results obtained. Then it is possible to plan and execute measures based on the company’s reality.
Among the daily activities of financial management are:
- internal and external audits;
- cash flow management ;
- accounts payable management;
- receivables management;
- payroll control;
- tax management;
- monitoring of performance indicators;
- opportunity assessment;
- financial control ;
- identification of improvement points.
What is the importance of financial management?
Now that you know what financial management is and how it works, you need to understand the importance of this activity. As we have seen, it encompasses the management of an organization’s financial resources — such as money, expenses, investments, payments, assets, etc.
Therefore, through strategic planning, the company can use its capital in the best way. For this, specialized professionals look for ways to reduce costs, increase productivity and improve weaknesses to meet financial goals.
With this, the company can have a good financial health, which allows it to earn profits and make investments for its growth. Therefore, efficient financial management is essential for the maintenance of the company.
On the other hand, if management is insufficient, it can lead the company to financial complications and stagnation. In more serious cases, there are risks of bankruptcy. After all, poor management prevents effective financial control, making it impossible to identify problems and opportunities.
Among the rich of financial mismanagement are:
- non-compliance with deadlines for paying off debts, generating interest and, consequently, an increase in debts;
- process inefficiency, causing rework and increased costs;
- higher operating expenses, reducing profit or leading to operations with cash in the red;
- execution of measures that are not based on the financial reality of the company, causing losses or loss of opportunities.
What is a company’s billing and how does it work?
Understanding the concept of financial management, it is time to find out what billing is and how it works. In practice, it is the sum of all sales of a company in a given period.
Thus, billing can be calculated at different frequencies, such as monthly, half-yearly and annually. It is used as a key performance indicator (KPI) for the company. These tools are metrics used to monitor the financial performance of a business.
From billing, it is possible to understand whether a company’s products or services are being sold as planned, for example. For this, it is necessary to know how to differentiate between gross revenue and net revenue.
Next, check out each of these indicators!
gross revenue
Gross revenue is calculated by multiplying the unit price of the product or service by the number of units sold. If the company has a basket of varied items, it is important to do this calculation separately and add the results to find the total gross revenue.
net revenue
Net billing refers to gross billing minus cost deductions (such as commissions, shipping, and cancellations) and taxes. Thus, the purpose of this KPI is to provide more accurate data for financial management.
How important is it to know a company’s revenue?
After knowing what billing is, it is interesting to understand the importance of this indicator for a company. By controlling this indicator, managers can find out whether the company’s billing covers the period’s costs.
In addition, billing is used as a calculation element for another important index for a business: profit. Observing this KPI makes it possible to understand whether a company has positive or negative results in its sales.
Another relevant point is that billing serves to determine the taxation regime of a company. Thus, by not following this calculation, the company may pay more taxes than it should, causing losses in the collection of taxes.
What is the relationship between financial management and company revenue?
As you learned, billing is a performance index, while financial management refers to managing a company’s finances. In this way, these concepts are directly related to the day-to-day activities of a company.
After all, efficient financial management accompanies performance indicators, including billing. Considering that this KPI is essential to calculate the profit of a business, its monitoring is of paramount importance to analyze the financial health of the enterprise.
Therefore, the indicator is indispensable in any company, but it is even more important in medium and large companies. Thus, financial management can perceive difficulties and take initiatives that guarantee the maintenance and growth of the business.
If, for one reason, billing and profit are lower than expected, it is necessary to identify the bottlenecks, plan and execute measures to recover these indices. In this way, the company will have tools to maintain financial well-being and grow consistently.
