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IMPORTANT FUNCTIONS OF THE FINANCIAL MANAGER:
The important function of the financial manager in a modern business consistsof the following:
1.Provision of capital: To establish and execute programmes for theprovision of capital required by the business.
2.Investor relations: to establish and maintain an adequate market for thecompany securities and to maintain adequate liaison with investmentbankers, financial analysis and share holders.
3.Short term financing: To maintain adequate sources for company’scurrent borrowing from commercial banks and other lending institutions.
4.Banking and Custody: To maintain banking arrangement, to receive, hascustody of accounts.
5.Credit and collections: to direct the granting of credit and the collectionof accounts due to the company including the supervision of requiredarrangements for financing sales such as time payment and leasingplans.
6.Investments: to achieve the company’s funds as required and toestablish and co-ordinate policies for investment in pension and othersimilar trusts.
7.Insurance: to provide insurance coverage as required.
8.Planning for control: To establish, co-ordinate and administer anadequate plan for the control of operations.
9.Reporting and interpreting: To compare information with operating plansand standards and to report and interpret the results of operations to alllevels of management and to the owners of the business.
10. Evaluating and consulting: To consult with all the segments of management responsible for policy or action concerning any phase of the operation of the business as it relates to the attainment of objectives and the effectiveness of policies, organization structure andprocedures.
11. Tax administration: to establish and administer tax policies andprocedures.
12. Government reporting: To supervise or co-ordinate the preparation of reports to government agencies.
13. Protection of assets: To ensure protection of assets for the businessthrough internal control, internal auditing and proper insurancecoverage.
1. Planning and Forecasting
2. Financing Decision
3. Investment Decision
4. Dividend Decision
5. Financial negotiation
6. Cash Management
7. Evaluating financial performance
8. Dealing with relevant parties in the Financial Markets
As a company grows, the responsibilities of the finance manager expand, with more outsourced functions coming in-house and more long-term strategic planning added to the finance manager's plate. Understanding the roles and responsibilities of a corporate finance manager will help you decide if this career is right for you and how to prepare to land these types of finance jobs.
Planning
Unlike a bookkeeper or accountant, a financial manager, often known as a chief financial officer, plans long-term financial strategy for a company, delegating bookkeeping work to lower-level staff. The financial planning aspect of the job includes setting goals for achieving specific revenues, profit margins and gross profits. It also requires setting targets for overhead and production expense levels and debt-service management. The financial manager needs to create a master budget that’s tied to the company’s balance sheet, accounts receivable and payable reports and cash flow and profit-and-loss statements. The financial manager conducts regular reviews of the master budget, called budget variance analyses, to determine if any changes should be made based on the actual performance of the company vs. its financial projections. Financial managers also determine the best investment options for a business’s excess cash and review ways to acquire capital for expansion or acquisitions.
Cost Containment
A key responsibility of a financial manager is to control the company’s expenses. This requires more than simply setting spending levels and cutting costs. Cost containment includes creating requests for proposals, bidding processes and purchasing policies for contractors, vendors and suppliers to ensure the company gets the best combination of quality and price. The financial manager sets benchmarks that determine when it’s most cost-effective to perform activities using in-house staff and when it’s better to use contractors. Cost-containment efforts include managing debt to ensure interest payments don’t wipe out company profits. Financial managers also create strategies that help reduce a company’s tax liability, such as depreciating assets.
Cash Flow Management
One of the most important functions of a financial manager is to project and manage the company’s cash flow. Cash flow refers to the actual receipt of money and payment of bills, as opposed to the company’s budgeted income and expenses. Assuming that because a business has more income than expenses it can pay its bills can lead to disaster. For example, if the company does not negotiate customer credit terms and vendor and supplier payment terms correctly, the business might be waiting to collect sales invoices long after bills have come due. Cash flow management includes monitoring receivables turnover and keeping enough credit and cash reserves available to keep the company financially stable.
Legal Compliance
The corporate financial manager ensures the business meets all of its legal obligations, such as sales and income tax payments; employee benefits contributions; state and federal labor wage requirements; and Securities and Exchange Commission reporting, if the company is a public corporation. At small and medium-sized businesses, the financial manager often works with tax experts and CPAs who guide the company regarding its legal obligations.
It can be summarized as below
Forecasting financial requirement
Acquiring necessary capital
Investment decisions
Cash Management
Interact with other departments
Role of a Financial Manager
Financial activities of a firm is one of the most important and complex activities of a firm. Therefore in order to take care of these activities a financial manager performs all the requisite financial activities.
A financial manger is a person who takes care of all the important financial functions of an organization. The person in charge should maintain a far sightedness in order to ensure that the funds are utilized in the most efficient manner. His actions directly affect the Profitability, growth and goodwill of the firm.
Following are the main functions of a Financial Manager:
Raising of Funds
In order to meet the obligation of the business it is important to have enough cash and liquidity. A firm can raise funds by the way of equity and debt. It is the responsibility of a financial manager to decide the ratio between debt and equity. It is important to maintain a good balance between equity and debt.
Allocation of Funds
Once the funds are raised through different channels the next important function is to allocate the funds. The funds should be allocated in such a manner that they are optimally used. In order to allocate funds in the best possible manner the following point must be considered
The size of the firm and its growth capability
Status of assets whether they are long term or short tem
Mode by which the funds are raised.
These financial decisions directly and indirectly influence other managerial activities. Hence formation of a good asset mix and proper allocation of funds is one of the most important activity
Profit Planning
Profit earning is one of the prime functions of any business organization. Profit earning is important for survival and sustenance of any organization. Profit planning refers to proper usage of the profit generated by the firm. Profit arises due to many factors such as pricing, industry competition, state of the economy, mechanism of demand and supply, cost and output. A healthy mix of variable and fixed factors of production can lead to an increase in the profitability of the firm. Fixed costs are incurred by the use of fixed factors of production such as land and machinery. In order to maintain a tandem it is important to continuously value the depreciation cost of fixed cost of production. An opportunity cost must be calculated in order to replace those factors of production which has gone thrown wear and tear. If this is not noted then these fixed cost can cause huge fluctuations in profit.
Understanding Capital Markets
Shares of a company are traded on stock exchange and there is a continuous sale and purchase of securities. Hence a clear understanding of capital market is an important function of a financial manager. When securities are traded on stock market there involves a huge amount of risk involved. Therefore a financial manger understands and calculates the risk involved in this trading of shares and debentures. Its on the discretion of a financial manager as to how distribute the profits. Many investors do not like the firm to distribute the profits amongst share holders as dividend instead invest in the business itself to enhance growth. The practices of a financial manager directly impact the operation in capital market.
Agreed with Mr. Venti and Mr. Vinod
