Question

why is short term financial management one of the most important and time consuming activities of the financial manager

Answer 1

Short term financial management is related to working capital management and intermediatory financial needs. Long term financial management is mostly related to capital investments and it is important only at the time of expansion or any other capital expenses, the frequency is low. However managing short term finances is the most crucial for the functioning of the organisation.

The day to day cash requirements is important for the organisation for meeting its functioning. It includes working capital financial requirements, meeting other short term financial needs like equipments, wages payments, rentals, etc. If there is shortage of funds for meeting the suppliers then there can be disruption in production process hence may cause huge long term damage to company's reputation in the market, similarly if there is over cash stocking, it may lead to increased cost of idle funds, hence leading to increased cost of production for the products, thus either it reduces the profit margin or increases the price of the products, anyways it leads to loss to the organisation. Similarly not able to meet wages of the employees may lead to loss in quality manpower to the organisation.

Hence it is very consuming and most important activities of the finance manager, so that an organisation may function smoothly.