Mineola, New York Nov 11, 2022 (Issuewire.com) - In business, financial management is the practice of dealing with a company’s finances in a manner that allows it to be successful and accommodating with regulations. That takes a high-level plan and boots-on-the-ground execution.
At its core, financial management is the practice of making a business plan and then ensuring all departments stay on track. Solid financial management allows the CFO or VP of finance to offer data that supports the creation of a long-range vision, informs decisions on where to invest, and yields insights on how to fund those liquidities, investments, cash runway, profitability, and more.
A financial management system combines quite a few financial functions, such as fixed-asset management, accounting, payment processing, and revenue recognition. By integrating these key components, a financial management system guarantees real-time visibility into the financial state of a company while facilitating everyday operations, like period-end close procedures.
Joseph Stone Capital shares objectives of financial management:
Building on those pillars, financial managers help their companies in a variety of ways, including but not restricted to:
- Tracking liquidity and cash flow
Ensure the company has enough money on hand to meet its compulsions.
- Maximizing profits
Offer insights on, for example, rising costs of raw materials that might activate an increase in the cost of goods sold.
- Developing financial scenarios
These are based on the business's current state and forecasts that presume a wide range of outcomes based on possible market conditions.
- Ensuring compliance
Keep up with federal, state, and industry-specific regulations.
- Manage relationships
Dealing effectively with investors and the boards of directors.
Ultimately, it is about applying effective management principles to the company’s financial configuration.
Scope of Financial Management
Financial management includes four major areas:
- Budgeting
The financial manager assigns the company’s available funds to meet costs, such as rents, mortgages or salaries, raw materials, employee T&E and other compulsions. Ideally, there will be some left to put aside for emergencies and to fund new business prospects. Companies usually have a master budget and may have separate sub-documents covering, for instance, cash flow and operations; budgets may be static or flexible.
- Planning
The financial manager plans how much money the company will need to maintain positive cash flow, allocate funds to grow or add new products or services and cope with unexpected events, and share that information with business colleagues.
Planning might be broken down into categories including T&E, capital expenses, and workforce and indirect and operational expenses.
- Managing and assessing risk
Line-of-business executives rely on their financial managers to evaluate and provide compensating controls for a range of risks, including:
- Credit risk
The effects like customers not paying their invoices on time and thus the business not having funds to meet obligations may adversely affect creditworthiness and valuation, which dictates the ability to borrow at favorable rates.
- Market risk
Affects the business’ investments and public companies, reporting, and stock performance. It can also reflect financial risk, particularly to the industry, such as a pandemic affecting restaurants or the shift of retail to a direct-to-consumer model.
- Liquidity risk
Finance teams should track current cash flow, estimate future cash needs and be ready to free up working capital as required.
- Operational risk
This is a catch-all category, and one new to some finance teams. It can include, for example, the risk of a cyber-attack and whether to purchase cybersecurity insurance, what disaster recovery and business continuity plans are in place, and what crisis management practices are triggered if a senior executive is accused of fraud or misconduct.
- Procedures
The financial manager sets procedures regarding how the finance team will process and distribute financial data, like payments, invoices, and reports, with security and accuracy. These written procedures also outline who is responsible for making financial decisions at the company — and who signs off on those decisions.
Companies do not need to begin from scratch; there are policy and procedure templates available for a range of organization types, such as this one for nonprofits.
Joseph Stone Capital explains that along with cash management, financial management includes revenue recognition, or reporting the company’s revenue as per the standard accounting principles. Balancing accounts receivable turnover ratios is a key part of strategic cash conservation and management. This may sound simple, but it is not always: At some companies, customers may pay months after getting your service.
Media Contact
Joseph Stone Capital Full Service Broker Firm news1@josephstonecapital.info https://josephstonecapital.org/
