THE ROLE OF A FINANCIAL MANAGER

Any company, be it a small or medium size to the large corporations such as IBM, Google, Microsoft, Amazon, etc. needs money to operate their business. In order to generate revenue, they must first spend their capital/equity (money) on inventory and supplies, equipment and facilities, employee wages and salaries. With that being said, finance is undoubtedly critical to the success of all companies. Although it may not be as visible as marketing or production, however, the art of managing a company’s finances is just as much a key to the firm’s sustainability.

Basically, financial activities of a company is one of the most important and complex activities. And, in order to take care of these activities, a financial manager is the one who is in charge of performing all the requisite financing activities. At the heart of every financially successful organization, for instance, you will surely find a financial manager – a professional who plays a vital role in steering the financial ship towards organizational profitability and growth. Although the role of a financial manager has long been one of the key positions at any organizations operating with significant turnover, however, for those who have been working in the financial field or for those who possess a strong grasp of numbers and good analytical and communication skills may be the ideal fit for the position.

Furthermore, the typical financial managers have a complex and challenging job. They analyze financial data prepared by accountants, monitor their company’s financial status, and prepare and implement financial plans. One day, they may be developing a better way to automate cash collections and at other times, they may be analyzing a proposed acquisition. This is simply one of the main responsibilities of being a financial manager. Since there are other critical functions that a financial manager performs, below here are some of the multifaceted roles that are embedded in the financial manager’s duties or responsibilities.

 

1. TRANSFORMING A COMPANY’S REAL ASSETS INTO FINANCIAL ASSETS

One of the core responsibilities of a financial manager is to ensure that the company has enough funds to finance its expansion and meet its obligations. In order to do this, the company issues securities (equity and debt), and the financial manager sells them to financial investors at the highest possible price. In today’s capital market economy, for instance, the role of a financial manager is less a buyer of funds with an objective to minimize cost and more a seller of financial securities. In other words, a financial manager must have the ability to maximize the value of these financial assets while selling them to the various categories of investors.

 

2. FINANCIAL PLANNING AND ALLOCATION OF FUNDS

Financial managers are technically the architects of a company’s financial future. They work closely with top management to develop long-term financial goals and strategies, which includes assessing the company’s current financial position, forecasting future trends, and devising plans to achieve financial objectives. By carefully analyzing data and economic indicators, financial managers help organizations to make informed decisions about investments, expansion, and risk management.

Aside from being a strategic financial planner, one of the primary duties of a financial manager is to allocate funds. Simply put, they allocate resources efficiently in order to ensure financial resources are utilized to the fullest. This involves setting the spending limits for various departments, monitoring expenses, and adjusting when necessary. Needless to say, the effective budgeting that a financial manager executes will help companies control costs, maximize profits, and maintain financial stability.

 

3. MAXIMIZING A COMPANY’S VALUE

The main goal of a financial manager is to maximize the value of the company to its owners. For a publicly owned corporation, for example, it is measured by the share price of its stock whereas for a private company, the value is gauged by the price at which it could be sold. To maximize the company’s value, a financial manager has to consider both short and long term consequences of his company’s actions.

Perhaps, maximizing profitability is one approach; yet, it should not be the only one determining aspect. This is because in some cases, such an intuitive approach favors making short term gains over achieving long term goals. As a quick illustration, questioning what would happen if a company in a highly technical and competitive industry had done no research and development? In the short run, profits would be high because research and development is very expensive. However, if it is in the long run, the company might lose its ability to compete because of its lack of new creativities and innovations.