While managing a company’s finances, it is important that financial management in business is involved to ensure its success.
What is financial management, you ask?
Financial management is when you gather all the data that results in long-term visions and make decisions based on that data. The insights provided by the data help fund investments
These include, among other things:
1. Maximizing Profits
Financial managers work towards optimizing profitability, by offering insights into factors like escalating raw material costs that might lead to a rise in the price of goods sold.
2. Tracking Liquidity and Cash Flow
One of the key objectives is to ensure that the company maintains sufficient funds to meet its financial obligations promptly.
3. Ensuring Compliance
Financial managers are responsible for keeping the company in alignment with state, federal, and industry-specific regulations, ensuring legal and ethical operations.
4. Developing Financial Scenarios
Based on the company’s present state, financial managers create scenarios that consider a broad spectrum of potential outcomes stemming from various market conditions.
5. Managing Relationships
Efficiently handling interactions with investors and boards of directors is crucial for financial managers in maintaining trust and support. Ultimately, the core objective lies in applying practical management principles to the company’s financial framework.
Financial management encompasses four main areas:
1. Planning
Financial managers predict the company’s cash needs for growth, emergencies, and new ventures, communicating this across departments. This involves segments like capital expenses, workforce costs, and operational expenses.
2. Budgeting
Financial managers allocate available funds for expenses such as salaries, raw materials, and obligations while setting aside for contingencies and growth. This is often managed through master and subsidiary budgets, which can be static or flexible.
3. Managing and Assessing Risk
Financial managers play a crucial role in evaluating and addressing different risks, including:
Market Risk
Affects investments, reporting, and stock performance. Industry-specific financial risks like the impact of a pandemic on restaurants or the shift to direct-to-consumer retail.
Credit Risk
Arises from customers not paying invoices on time, affecting funds for obligations, creditworthiness, and borrowing rates.
Liquidity Risk
Involves tracking current and future cash flow to ensure adequate working capital availability.
Operational Risk
Encompasses various risks like cyber-attacks, necessitating cybersecurity measures, disaster recovery plans, and crisis management.
4. Procedures
Financial managers establish procedures for processing and distributing financial data securely and accurately. These protocols outline decision-making responsibilities and approval processes.
Pre-existing policy and procedure templates tailored to different organizations can streamline implementation, such as those designed for nonprofits.
Financial management functions are grounded in planning, forecasting, and expenditure control.
The financial manager’s practical activities encompass
1. Financial Planning and Analysis (FP&A)
This involves issuing profit and loss (P&L) statements, analyzing profit margins and contributions to net profitability from various product lines or services, maintaining budgets, forecasting future financial performance, and conducting scenario planning.
2. Cash Flow Management
Ensuring adequate cash reserves for day-to-day operations is paramount. This includes paying employees, procuring raw materials, and managing both inflows and outflows of cash, known as cash management.
3. Revenue Recognition
Financial management encompasses accurately reporting company revenue based on established accounting principles. Balancing accounts receivable turnover ratios is vital for strategic cash management, especially when customers may delay payment for months after service delivery.
While pursuing an MBA in Financial Management at King’s Business School, you will be met with a comprehensive and dynamic educational experience. Our program equips you with essential skills to make a significant impact, through the following modules:
- Strategic Management
- Leadership in Finance
- Human Resource Management
- Marketing Management
- Operations Management
- Business Research Methods
- Strategic Financial Management
- Applied Corporate Finance
At King’s Business School, we recognize the pivotal role that financial management plays in the success of businesses. Invest in King’s Business School for unparalleled financial management education and elevate your business performance.
To learn more about our MBA in Financial Business, click here.
