Question

In: Accounting

how to select a Financial System that meets the needs of those that receive it.

how to select a Financial System that meets the needs of those that receive it.

Solutions

Expert Solution

Finance is the life blood of any business. In simple words the term finance may be defined as the position of money at the time it is wanted. Financing consists the raising, providing, managing of all the money, capital or funds of any kind to be used in connection with the business.

A financial system is a system that allows exchange of funds between the lenders, investors, and borrowers. A financial system includes banks (public sector or private sector), financial institutions, financial markets, financial instruments, and financial services.

The financial system plays a vital role in supporting sustainable economic growth and meeting the financial needs of any firm, individual, company or corporates. Most often, one of the main reasons behind failure of businesses is the lack of a good financial management system that provides warning signs when the business runs out of cash. An apt financial management and accounting system should be in such a way that provides them clear visibility of the company’s finances, and allows them to solve current problems and future challenges easily.

Choosing a right Financial system helps in ascertaining and managing not only current requirements but also future needs of an organization.
 It ensures that funds are available at the right time and procurement of funds does not interfere with the right of management / exercising control over the affairs of the company.
 It influences cost of capital. Helps in efficient fund management and enhances profitability of organization.
 It enhances market value of the firm through efficient and effective financial management.

Therefore a financial system much be selected in such a way that it meets all the requirements of those that receive it.

Criterias to be kept in mind while selecting an apt Financial System are :

  1. Create a selection committee -

    Form a committee that provides representation from all areas with a clear and consistent understanding of the objectives that needed to be focused on when selecting a new system.

  2. Implementation Cost - Calculate the implementation cost and set a budget.
  3. Usability - Financial system must be in such a way that all stakeholders will be able to use and understand.
  4. Flexibility - The financial system once established cannot be changed easily. So the system to be implemented should meet current and future requirements. Plan accordingly.
  5. The system should help in taking decisions at correct time and in providing early warnings.
  6. Setting goals and objectives - identify key requirements -Perform a strengths, weaknesses, opportunities, and threats (SWOT) analysis of your current system.
  7. Testing - Any system before implementing should be first tested so as to know and determine the outcome before implementation.

Before selecting any financial system one must thoroughly understand and study why they are choosing this system and how will it effect their current and future business plans & goals. If you carefully select a financial system after considering all possible threats and opportunities of your business, the financial system will meet the needs of those that receive it.


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