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BUSa BHioiiRu

Financial management involves creating a business plan and ensuring departments adhere to it, enabling informed investment decisions and insights into liquidity and profitability. It encompasses capital budgeting, capital structure, and working capital management, often supported by ERP software for real-time financial visibility. An example illustrates how a financial manager allocates funds for a new product while ensuring sufficient cash flow for operations.

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4 views2 pages

BUSa BHioiiRu

Financial management involves creating a business plan and ensuring departments adhere to it, enabling informed investment decisions and insights into liquidity and profitability. It encompasses capital budgeting, capital structure, and working capital management, often supported by ERP software for real-time financial visibility. An example illustrates how a financial manager allocates funds for a new product while ensuring sufficient cash flow for operations.

Uploaded by

kazeluwesa
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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What Is Financial Management?

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.

Video: What Is Financial Management?

The functions above can be grouped into three broader types of financial management:

Capital budgeting

Relates to identifying what needs to happen financially for the company to achieve its short- and
long-term goals. Where should capital funds be expended to support growth?

Capital structure

Determine how to pay for operations and/or growth. If interest rates are low, taking on debt might
be the best answer. A company might also seek funding from a private equity firm, consider selling
assets like real estate or, where applicable, selling equity.

Working capital management

As discussed above, is making sure there’s enough cash on hand for day-to-day operations, like
paying workers and purchasing raw materials for production.

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What Is an Example of Financial Management?


We’ve covered some examples of financial management in the “functions” section above. Now,
let’s cover how they all work together:

Say the CEO of a toothpaste company wants to introduce a new product: toothbrushes. She’ll call
on her team to estimate the cost of producing the toothbrushes and the financial manager to
determine where those funds should come from — for example, a bank loan.

The financial manager will acquire those funds and ensure they’re allocated to manufacture
toothbrushes in the most cost-effective way possible. Assuming the toothbrushes sell well, the
financial manager will gather data to help the management team decide whether to put the
profits toward producing more toothbrushes, start a line of mouthwashes, pay a dividend to
shareholders or take some other action.

Throughout the process, the financial manager will ensure the company has enough cash on hand
to pay the new workers producing the toothbrushes. She’ll also analyze whether the company is
spending and generating as much money as she estimated when she budgeted for the project.

NetSuite: Financial Management for Startups a

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