At its core, financial management is the practice of making a business plan and then ensuring all departments stay on track. Solid financial management enables the CFO or VP of finance to provide data that supports creation of a long-range vision, informs decisions on where to invest, and yields insights on how to fund those investments, liquidity, profitability, cash runway and more.
ERP software can help finance teams achieve these goals: A financial management system combines several financial functions, such as accounting, fixed-asset management, revenue recognition and payment processing. By integrating these key components, a financial management system ensures real-time visibility into the financial state of a company while facilitating day-to-day operations, like period-end close processes.
Building on those pillars, financial managers help their companies in a variety of ways, including but not limited to:
- Maximizing profits: Provide insights on, for example, rising costs of raw materials that might trigger an increase in the cost of goods sold.
- Tracking liquidity and cash flow: Ensure the company has enough money on hand to meet its obligations.
- Ensuring compliance: Keep up with state, federal and industry-specific regulations.
- Developing financial scenarios: These are based on the business’ current state and forecasts that assume a wide range of outcomes based on possible market conditions.
- Manage relationships: Dealing effectively with investors and the boards of directors.
Ultimately, it’s about applying effective management principles to the company’s financial structure.
More practically, a financial manager’s activities in the above areas revolve around planning and forecasting and controlling expenditures.
The FP&A function includes issuing P&L statements, analyzing which product lines or services have the highest profit margin or contribute the most to net profitability, maintaining the budget and forecasting the company’s future financial performance and scenario planning.
Managing cash flow is also key. The financial manager must make sure there’s enough cash on hand for day-to-day operations, like paying workers and purchasing raw materials for production. This involves overseeing cash as it flows both in and out of the business, a practice called cash management.
Along with cash management, financial management includes revenue recognition, or reporting the company’s revenue according to standard accounting principles. Balancing accounts receivable turnover ratios is a key part of strategic cash conservation and management. This may sound simple, but it isn’t always: At some companies, customers might pay months after receiving your service. At what point do you consider that money “yours” — and report the good news to investors?