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Summary: Financial management includes practices that allow the efficient administration of a company’s financial resources. It helps define the scope of financial management, the methods to achieve financial goals, and most importantly, remain compliant with government rules and regulations.
The primary purpose of financial management is to create a sound business plan and then ensure that each business department sticks to it and achieves the expected outcomes within the specified duration.
Financial management enables the Finance VP (or the CFO) to gain valuable insights about investments, new market opportunities, and profitable ventures. It also provides accurate data regarding the liquidity and profitability of their company.
This is where a finance ERP system comes into the picture. It monitors and tracks various financial functions, including fixed-asset management, accounting, payment processing, accounts receivable, accounts payable, revenue recognition, and many more. It also provides real-time visibility into the company’s financial state while executing daily operations such as period-end closing processes.
Solid financial management models ensure that the following three pillars of financial governance remain intact.
Finance managers contribute in various ways to their organization by building on the three pillars we discussed in the previous section.
The four most significant areas of financial management are:
In the planning phase, the financial manager:
For better planning, it’s broken down into three subcategories, namely capital expenses, workforce & travel-related expenses, and operational costs.
The finance manager allocates the required company fund to meet costs, such as:
Budgets are of two types, namely static and flexible.
Finance managers are adept at assessing and managing various types of risks, such as:
The finance manager defines the set of processes and procedures that guide the finance team’s functioning. Other responsibilities include:
The primary responsibilities of a financial manager are brainstorming, estimating, and controlling expenditures. It includes examining P&L statements, identifying which product lines or services make the maximum contribution to the company’s profitability, maintaining and updating the budget, scenario planning, and estimating what steps might enhance the financial performance in the future.
Another responsibility is managing cash flow, which ensures there’s enough cash in hand for running day-to-day operations such as acquiring raw materials and paying workers. Moreover, a financial manager also needs to report the company’s revenue based on standard accounting principles. And this requires dealing with customers who pay late (after a few days/weeks/months).
Financial functions can broadly be classified into three categories:
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Disclaimer: All the information, views, and opinions expressed in this blog are those of the authors and their respective web sources and in no way reflect the principles, views, or objectives of Sage Software Solutions (P) Ltd.