Introduction
For a business to succeed in a business environment, it must practice financial
management (Korir , 2016). Financial management plays a key role in ensuring the business is
compliant with regulations within the business jurisdictions. Financial management aims to
maximize the shareholders' wealth by investing the generated capital effectively and efficiently
(Pandey, 2015). Besides, financial management ensures business operations are run smoothly
and aids in creating a long-term vision of the company, which yields insights on maximizing
profits and liquidity (Mueller, 2016). Besides, financial management is beneficial to a business in
that it promotes financial transparency, improves company planning and development of
strategies, improves compliance, boosts growth measurement, and reduces errors (Korir , 2016).
This report entails financial advice to a startup on the different approaches to make effective
decisions, the financial management principles to adhere to, and their impact on business in both
short-and-long-term.
2.0 Effective Decision-making
In every business, a manager or an owner must make decisions. Before making any key
decision, a business owner must know the different approaches (Korir , 2016). The different
approaches that enhance effective decision-making are autocratic decision making, participatory
decision making, consensus decision making, and democratic decision making (Mueller, 2016).
All these decision-making approaches can be used in the formal and informal organization
structure.
2.1 Formal Organization Structure
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The formal organization structure is based on hierarchy, and it aims to achieve the
organization's objectives (Korir , 2016). The relationship between employees in the organization
is prescribed informal organization by allowing teamwork and working together to better the
company's productivity (Stormer & Meier, 2012). In this organization, the efficiency of
operations is achieved by specialization and division of labor. It majorly concentrates on the jobs
to be done, and rigid procedures and rules bind it (Korir , 2016).
2.2 Informal Organization Structure
In contrast, the informal organization structure is developed based on emotions, dislikes,
likes, personal attitudes, and prejudices. The organization is formed on the grounds of social and
personal relations (Korir , 2016). It is not formal or formed based on rules and regulations;
instead, it is natural. In addition, the informal organization structure allows employees
engagement, and they take part in decision making compared to a formal structure based on
regulations and procedures (Pandey, 2015). In the startup case above, the owner should make
key decisions regarding investment and production. The owner must understand the optimal firm
size, the assets they are supposed to acquire, and the assets to be added or eliminated (Stormer &
Meier, 2012).
2.3 Investment Decisions
Investment is the art of increasing asset acquisition through assigning resources that assist
in profit earnings. With technological development and the rise of the pandemic, e-commerce is
the best business model to pursue (Korir , 2016). However, several factors need to be considered
before making investment decisions (Stormer & Meier, 2012). As an owner, you must think
about the return on investment, the risk involved, the investment period, liquidity, volatility, and
the budget in place to open an e-commerce business (Easton, 2016). The return on investment
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measures the benefits gained from the investment and must be above the market's inflation rate
and interest rate. Also, the owner must measure the risk of investing in a business if there is a
rise in unforeseen circumstances (Pandey, 2015). The higher the return, the higher the risk (Korir
, 2016). For instance, e-commerce such as Amazon it's a success. It is attributed to their strategic
and effective decision-making. The company analyzes the risk involved and the return on
investment before investing in a business idea (Pandey, 2015). Also, e-commerce should analyze
the short-term, medium, or long-term investment period. Besides, the business owner should
consider liquidity (Korir, 2016). The business should have allocated capital that is easily
converted to cash. The owner should not invest fully in fixed assets forgetting to hold capital
allocated for liquidity.
2.4 Business Goals
However, for investment decisions to be effective, a business owner must have concrete
business goals meeting short, medium, and long-term needs (Pandey, 2015). Businesses,
especially startups, must-have business goals since they assist them in creating accurate plans.
For e-commerce, the short-term goals are the company must ensure it manages its operating
costs properly and strategically (Easton, 2016). Proper management ensures the investment costs
are reduced over time, and the aim is to produce high-quality products and meet consumer needs.
In addition, the business aims at establishing business relationships by increasing engagement
with online users (Easton, 2016). The company should also aim to provide a unique customer
experience by offering stand-out products and services that appeal to their tastes and preferences
(Easton, 2016). The aim of producing stand-out products is to gain customer loyalty quickly to
influence business growth (Gilbert, 2017). A new business or organization must adapt to
business operations in every business environment. They must ensure their short-term success is
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not affected by market risk; instead, they should promote and retain customer connections that
boost revenue streams (Gilbert, 2017).
In the case of financial management, the business should have both short and long-term
goals. Financial stability is of the essence in a business, especially to attain its long-term goals
(Pandey, 2015). However, for a business to achieve long-term goals or have financial stability, it
must have short-term goals. The short-term goals of e-commerce are it should clearly state
revenue goals(Easton, 2016). The revenue goals should be achievable, and the period the
company aims to achieve them (Mueller, 2016). Moreover, the business should analyze the
competition in the market comparatively, determine areas to reduce cost, have a sustainable
method of managing debt, and improve financial margins (Gilbert, 2017). The aim of creating a
comparative competition analysis is to enable the business to adjust its pricing in the market. The
startup should also focus on areas such as overhead expenses to promote the company's
profitability.
2.5 Product Manufacturing
Businesses, especially startups in e-commerce, should analyze the different forms of
producing their products and the impact they have on costs (Lusardi, 2012). The best business
model for a manufacturing e-commerce startup is manufacturing its products (Easton, 2016).
Manufacturing is a holy grail of models, even though it does not satisfy every niche (Gilbert,
2017). In our case, I would suggest that the startup manufacture their products after analyzing
key elements such as the budget they have, the quality control amount they wish to maintain,
their production capabilities, and future goals (Lusardi, 2012). Businesses that manufacture their
products incur the lowest cost in design and unit production, indicating huge profit and growth
potential (Easton, 2016). Also, an e-commerce that manufactures its products can create a solid
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brand and enhance customer loyalty. In addition, the startup can have full control over
overproduction and eliminate problems related to management issues (Gilbert, 2017). Despite
the advantages and benefits incurred from startups manufacturing their products, the business
can also experience drawbacks such as increased expenses such as equipment purchase and time-
consuming (Easton, 2016).
3.0 Financial Sustainability
Furthermore, a business must be sustainable by having effective financial strategies
(Murugi, 2019). Financial sustainability is a business's ability to begin, grow and maintain its
operations in the market under a limited budget, which boosts the company's financial stability in
the short and long term (Murugi, 2019). For a firm to be sustainable in a market, it must access
capital. Capital ensures business operations are run smoothly (Estebban, 2015). For instance,
large corporations such as Amazon ensure they have large amounts of capital, boosting their
operations and increasing revenue. For a business to grow, it must invest in generating revenue
(Estebban, 2015). In the case of the startup e-commerce, it must have an initial startup capital
that ensures the firm's operations are running smoothly and support business growth.
There are various ways to access capital through self-finance, public listing in an
exchange market to increase the company's capital, debentures, bonds, angel investing, or loans.
In the case of an e-commerce startup, they should not use net present value in their proposal to
attract investors (Murugi, 2019). Net present value is not perfect, and it's not a distinctive metric
to rely on because it is difficult to determine a discount rate to use, the cost of capital, and the net
present value does not equate to accurate investment size (Gilbert, 2017).
4.1 Profitability
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Besides, a company's main goal is profitability (Murugi, 2019). The company aims to
generate more revenue than costs incurred. If the company experiences lower profitability, its
cash flow can be stretched and stressed (Estebban, 2015). Low profitability is expensive to an
organization and leaves no room for reinvestment which can ultimately affect the company's
financial sustainability (Murugi, 2019). Also, profits can be high, which might increase the
chances of reinvesting (Gilbert, 2017). However, higher profits are dangerous because they can
either increase the number of competitors to stabilize the market demands or cause zero
economic profits in the long run (Murugi, 2019). The high profits can also lead to undercutting
by competitors and might lead to price wars, affecting financial stability (Easton, 2016). In
addition, a business can determine its profitability by using a profitability ratio known as net
profit margin (Murugi, 2019). The net profit margin is beneficial because it lets the company
know if it is generating enough profits after containing overhead and operating costs (Estebban,
2015).
3.2 Reporting
To have sustainable financial growth, it must have a systematic financial review and
reporting strategy (Easton, 2016). Reviewing and reporting financial data enables the company to
know the negative trend or find ways to increase their revenue (Estebban, 2015). Financial
reporting is also beneficial to the company because it can acquire capital support (Murugi, 2019).
The reporting will also assist the company in selling the business or merging or acquiring other
businesses.
3.3 Planning
Once the startup owner has determined the e-commerce short-and-long-term goals,
investment, and manufacturing decisions, the company can then develop a budget. A budget is
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important because it enables the business to achieve its targets (Murugi, 2019). The budgets are
critical, especially in a business, because they are powerful tools of profit maximization and
attaining economic growth (Murugi, 2019). The budgets provide a concrete structure for success
by breaking down capital use into months, weeks, and yearly targets (Hamilton, 2015). In the
case of the startup e-commerce, the financial planner can help the owner develop a budget.
The financial planner will make the budget realistic by determining the financial
implications of business decisions, the unrealistic operational spending targets, the financial
imbalances, and emotional spending (Murugi, 2019). Besides, once the business has commenced,
the owner needs to collect financial data to aid in knowing both the financial performance and
the position of the e-commerce. Some vital types of data to be collected by the startup are assets,
liabilities, equities, and capital (Mueller, 2016). Assets are items the business owns and range
from real property, tangible or intangible (Hamilton, 2015). The tangible assets include cash,
inventories, and equipment (Easton, 2016). On the other hand, Liabilities are the company's
financial obligations, such as short-and-long-term debts. Other elements included in liabilities
are creditors, accounts payable, and wages (Hamilton, 2015). Also, equities are the company's
value, and in some cases, they are negative due to liabilities being more.
4.0 Conclusion
In summary, business growth and development require strategic financial management.
The firm should make an effective investment, manufacturing, and financial sustainability
decisions. Before investing in a business, the business owner should conduct a comparative
market analysis by determining market volatility, liquidity, return on investment, and risks
involved. Besides, manufacturing is a holy grail in e-commerce (Mueller, 2016). A firm should
produce its products to promote its brand, overproduce, and reduce costs related to operations
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and distribution of goods. Once a firm has known its manufacturing and investment needs, it is
important to develop a financial budget. A financial planner can prepare the budget by analyzing
key elements such as implications of business decisions, unrealistic operational spending targets,
financial imbalances, and emotional spending. Lastly, financial sustainability is the ability of a
firm to use its limited budget in commencing, producing, and managing its business operations in
both short-and-long-term. Financial sustainability promotes financial stability, and it is promoted
by profitability, reporting of finances, and strategic planning. The firm's profitability can be
determined by using net profit margins, which show the amount of profit generated once
overhead and operating costs are contained.
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5.0 References
Easton, P., 2016. Financial reporting: An enterprise operations perspective. Journal of Financial
Reporting, 1(1), pp.143–151.
Estebban, O., 2015. Conducting a pricing and profitability diagnostic. Pricing and Profitability
Management, pp.23–40.
Gilbert, A., 2017. Improve your financial decision making, Basingstoke, United Kingdom:
Macmillan Education Ltd.
Hamilton, L., 2015. Ebusiness & eCommerce.
Korir, M., 2016. Contents: European Financial Management 2/2016. European Financial
Management, 22(2), pp.169–169.
Lusardi, A., 2012. Numeracy, financial literacy, and financial decision-making.
Mueller, W.J., 2016. Hospital Financial Management. Financial Management, 1(1), p.58.
Murugi, R., 2019. Financial Accountability & Management, 35(1), pp.115–117.
Pandey, I.M., 2015. Financial management, New Delhi, Delhi: Vikas Publishing House PVT
LTD.
Stormer, H. & Meier, A., 2012. Ecustomer Relationship Management. eBusiness & eCommerce,
pp.203–246.