Vivian Ayako Mudavuda

Financial Management Meta Description: Understand financial management, its importance, and benefits. Learn about the functions and types of financial management. What comes to your mind when you think of financial management? Managing your bank accounts, paying the rent or mortgage, paying utility bills, buying groceries, or planning a monthly budget. Financial management for business is a little bit complex. It involves controlling and tracking all money flowing in and out of the business and also taking steps to make the company profitable and financially secure. In this article, we will break down the importance and benefits of financial management. An-image-financial-management. What is financial management? Financial management controls the flow of money in and out of the organization. A business sells products or services, pays expenses, balances the books, and files taxes. It includes more complex processes, such as paying employees, buying supplies, and submitting reports to government agencies. The act of overseeing all these transactions for a business is financial management. Financial management majors in monitoring, controlling, protecting, and reporting a company’s financial resources. Companies have accountants or finance teams responsible for managing their finances, including all bank transactions, loans, debts, and investments. Finance teams are also responsible for ensuring the company follows all regulations, stays solvent, and is as profitable as possible. Some of the responsibilities of the finance team include: Invoicing and receivables Payables Bank transactions and reconciliations Closing the books Reporting Scenario modeling, planning, and budgeting Payroll and expenses Cash management and forecasting Tax strategies Risk and compliance Why is Financial Management important? It keeps a company solvent It ensures the business doesn’t go bankrupt Good financial management and financial management software help the business grow and thrive. Improves profitability. The finance team works with sales and marketing teams to set prices for the company’s products or services. Good financial management helps the company meet its goals. What are the Goals of Financial Management? Minimizing costs Maximizing profitability Keeping the company solvent Ensuring a good return on investment Raising capital Capital forecasting Reducing risks and avoiding fines What are the Financial Management Functions? 1. Accounting It includes tracking, recording, and matching all monetary transactions within the company. The team is led by a controller or chief accounting officer and aided by accounting software. They use cloud ERP systems, and financial systems to perform, record, and report on the company’s finances. Accounting is equally responsible for account reconciliations and closing the books. 2. Project Management Projects are the major source of income and expenses. Finance teams are responsible for allocating budget to a project and overseeing the revenue the project brings in. 3. Procurement Procurement is divided into two Direct procurement includes the parts and raw materials used to make a company’s products. It is overseen by the supply chain and operations teams who manage and work with suppliers through a procurement system. When the system is connected to each makes the operations, control, and oversights of suppliers and inventory much easier. Indirect procurement is the supplies that don’t go into a company’s products and services but are used for day-to-day operations. Includes items such as office furniture, laptops, and stationery. Finance authorizes and tracks these purchases using a procurement system. 4. Financial planning and analysis (FP&A) It’s a separate team inside the finance department responsible for modeling potential scenarios and forecasting outcomes for the best-and-worst-case situations. FP&A uses these to forecasts to develop financial plans and budgets for the next quarter or year. They work closely with other parts of the business to make forecasts and budgets, including sales plans, workforce plans, and operational plans. 5. Tax Filing taxes is compulsory for every company. It becomes more complicated for big companies in different countries. Such companies have specialized tax teams who use tax-reporting software for country-by-country and other reporting. 6. Treasury The Treasury Department is responsible for tracking and managing capital assets, debts, loans, and cash in blank. They advise the CFO on how much money is available for capital investment. Also responsible for the company’s capital structure. 7. Risk and compliance Manages controls for financial risks-everything from audits to natural disasters and reduces the company’s exposure. It makes sure the company follows the rules and regulations laid out by the government, and regulators to stay in compliance and avoid hefty fines. Types of Financial Management Financial management is divided into 4 types 1. Working capital management Working capital management focuses on day-to-day operations, such as making sure there’s enough money to pay employees or buy raw materials. It includes cash on hand, inventory on hand, or other assets that, can be quickly sold to raise money if the need arises. 2. Revenue cycle management The revenue a company earns over time by selling its goods and services is the revenue cycle. When a company moves toward selling everything as a service it is recognized in the monthly or quarterly period, in which it’s earned, rather than all at once at the time of sale. This spread revenue cycle is recognized as monthly recurring revenue. 3. Capital budgeting This area identifies what a company needs financially to achieve long-term and short-term goals. Financial managers use capital budgeting to evaluate the profitability of investments and projects to see if they add value to the business. 4. Capital structure It combines debt and equity to finance a company’s operations, acquisitions, investments, and growth. A company’s capital structure is usually conveyed in a debt-to-equity ratio. An organization will have a hard time surviving without any sort of financial management software. When your company grows, the financial management system gets more complicated, you will need financial software that can do more than basic accounting. Advanced financial management systems help you manage the flow of money, optimize profitability, determine tax obligations, reduce risk, stay compliant, and improve revenue management. With the right enterprise resource planning (ERP) system in place be sure to handle whatever situation comes your way. Vivian. Writes