FINANCIAL MANAGEMENT FUNCTIONS EXPLAINED IN A SIMPLE MANNER

Before I go on explaining the financial management functions, I would like to briefly explain what financial management is in a non technical manner.

WHAT IS FINANCIAL MANAGEMENT?

In a common parlance, financial management is all that financially responsible people do in order to ensure; safety and multiplicity of finance. Yes, if you invest your finance in a safe investment, you have taken a financial managerial action to ensure the safety of your finance while at the same time creating an opportunity for that money to grow and multiply. Simple decision of whether to buy a pair of shoe or not to buy now is a financial management decision that everyday people make on a daily basis.

According to I M PANDEY, financial management is that managerial activity which is concerned with the planning and controlling of the firm’s financial resources.

FINANCE FUNCTIONS

Investment functions: it is as sure as the ‘day and night’ for a business to die off if it fails to make investment in its business. This investment can be in any form (human resources, material, etc). It is the function of the finance arm of an organization to evaluate the numerous investments that abound everywhere in the light of a business’s standard. Investment appraisal techniques are employed to completely x-ray a company’s prospects.

Financing functions: this is simply the manipulation done on the finance structure of a business so as to get the best financial mix that will enable a company achieve her objectives (financial and non financial). Taxation aspects of financing also need to be taken into consideration while considering the best financing mix of a business.

Dividend functions: you will agree will me that businesses don’t withdraw all that are made in a given period for consumption. The ration of the profits to be retained in a business is decided by the finance department of a company. This supplements the financing function of the finance department.

Risk management: the introduction of information technology (IT) in business / finance came with lots of unattended risks that are begging for attention. The line between finance and IT continually fade away and as such requires someone or a department with good knowledge of both finance and IT to manage the emerging business risk and financial risk.

Liquidity function: a profitable business can still not survive if it fails to manage her liquidity properly. By liquidity, I mean the ability to settle claims as they fall due. It is the finance function to ensure that this objective is achieved.

REASON BEHIND FINANCE FUNCTION

We shouldn’t forget the fact that all that the financial manager does or all finance function are geared towards one thing and that thing is to maximize value for the providers of finance. That is to say that value creation.

FUNCTIONS OF A FINANCIAL MANAGER

Firstly, I would like to let you know who a financial manager is before moving on to say what he or she does. Who is a financial manager? A financial manager is an individual who is significantly responsible in carryout finance function/ financial management function.

Note that a financial manger is a key officer in every modern business enterprise as finance function is no longer a functional activity, financial manager now have strategic role to play in the overall smooth running of a business.

Profit planning: profit planning is a kind of forecasting techniques used by financial managers to get insight into what the financial position of a company is likely to be. Preparation of sales budgets is a good of profit planning activity that a financial manager performs as far as financial management is concerned.

Fund raising: one thing is to figure out the best financing mix that a company can adopt and another thing is to raise the necessary fund needed to execute a project. It is the duty and function of the financial manager to champion the fund raising exercise of a company.

Dealings with capital market: the public perception of a business is largely responsible for the success of a company. The financial manager has a great role to play in order to influence the emotion of the operators of the capital market.

Allocation of fund: it is the function of the financial manager to champion the flow of cash in a business concern.

I am sure that you enjoyed the time that you have invested into reading this piece, and have got an answer to the question that brought you here in the first place, but, if you still have any financial management question that is not answered by this article, I encourage you to explore other articles in this blog or better still leave your question as a comment right below this post.

To your successful financial management function!