Financial management

1. Managerial Aspects of
Business and Government
Initiatives
ARUN KUMAR
Assistant Professor
Department of commerce
Dyal Singh Evening College
University of Delhi

2. What is Financial Management?
• Financial management is about controlling the flow of money in and out
of the organization.
• Every business needs to sell products or services, pay expenses, balance
the books, and file taxes.
• Financial management encompasses all of this, along with more
complex processes, such as paying employees, buying supplies, and
submitting reports to government agencies to show they’re obeying
applicable laws and regulations.
• The act of overseeing all these transactions for a business is what we
mean when we talk about a company’s financial management.
• In general, the bigger the company, the more complicated financial
management becomes.

3. What is Financial Management?
• Employees who specialize in financial management are responsible
for all the money going into and out of the company.
• Smaller companies will have at least one accountant or bookkeeper
who works with the bank to execute these transactions and track the
flow of money.
• Large companies will often have entire finance teams led by a chief
financial officer (CFO), controller, head of finance, or someone with a
similar title.

4. What is Financial Management?
• The finance team’s primary job is to make sure the company stays
solvent and never runs out of cash—but it’s not their only job.
• They’re also responsible for handling loans and debts, balancing the
books, overseeing investments, raising venture capital, and managing
public offerings (i.e. selling company stock on the open market).
• Basically, the finance team protects a company’s financial resources,
monitors and controls all transactions, and takes steps to make the
company as profitable as possible.

5. Key Takeaways
• Financial management is all about monitoring, controlling, protecting,
and reporting on a company’s financial resources.
• Companies have accountants or finance teams responsible for managing
their finances, including all bank transactions, loans, debts, investments,
and other sources of funding.
• Finance teams are also responsible for ensuring the company follows all
regulations, stays solvent, and is as profitable as possible.

6. Understanding Financial Management
• Financial management includes business processes that span every team
and department in the company. A finance team’s responsibilities
include:
• Invoicing and receivables: Money that customers pay or have promised
to pay to the business.
• Finance teams are responsible for sending out invoices and processing
the payments as they come in.
• Collections teams are responsible for following up on overdue accounts
(this process is sometimes outsourced to third parties).
• Payables: Money that the company owes to its vendors and suppliers.
Finance teams are responsible for paying these bills and recording the
payments.

7. Understanding Financial Management
• Bank transactions and reconciliations Finance teams work closely
with their banks to ensure that every bank transaction is processed
correctly.
• They must also make sure that the bank’s statements match their
own records, which are kept in the company’s general ledger and
subledgers.
• The finance team must follow up on, and correct, any mismatches
between bank statements and ledgers—a process known as account
reconciliation.
• Closing the books: On a particular date, the company will tally
transactions from a given period so it can reconcile its accounts and
report on its financial position.
• The close, as this process is known, typically happens at the end of a
month, quarter, or year.

8. Understanding Financial Management
Reporting: Companies must report regularly on their financial performance,
whether it’s to the CEO, a board of directors, investors, shareholders, or
government regulators.
• The finance team is responsible for ensuring that these reports are clear and
accurate.
Scenario modeling, planning, and budgeting: Scenario modeling starts with
making certain assumptions about an upcoming period of time, such as, “Next
quarter, we expect to bring in $10 to 15 million in revenue.”
• The finance team will run multiple “what-if” scenarios for the best and worst
cases to estimate how much money the company will have if those conditions
come to pass.
• Based on these models, the finance team will assess how best to respond and
develop appropriate plans, forecasts, and budgets.
• Often, the finance team will work with other departments—such as sales, HR,
project management, or procurement teams—to build models that include data
from sales forecasts, workforce expenses, and inventory costs.
• This is known as connected planning.

9. Understanding Financial Management
Payroll and expenses: Individual paychecks to employees are typically the
responsibility of the HR department.
• However, overall workforce costs roll up to the finance team so they can
factor it into their budgets and plans.
• Finance is also responsible for reimbursing employee expenses, such as
work-related travel and meals.
Cash management and forecasting: With money constantly flowing in and
out of a business, it’s important for finance teams to look ahead.
• They must ensure that the company has enough cash to stay solvent for
the next quarter, next year—even the next three to five years.
• In most companies, cash forecasting is typically done once a month.

10. Understanding Financial Management
Tax strategies: Every company must file. taxes; and, like the rest of us,
they want to take advantage of as many deductions as possible to prevent
overpayment.
• Some finance teams have tax specialists on staff to manage this.
• Those that don’t will often outsource this task to an accounting firm.
• Risk and compliance Every business has financial risks, from rising
interest rates to global pandemics.
• It’s the finance team’s job to control such risks and reduce the
company’s exposure as much as possible.
• They must also make sure the company follows the rules and regulations
laid out by governments, regulators, and other jurisdictions to stay in
compliance and avoid hefty fines.

11. Why is Financial Management Important?
• Financial management matters because it keeps a company solvent.
• Its most basic goal is to ensure that the business doesn’t go bankrupt.
• Financial management addresses the most critical issues that a
business can face, such as loss of revenue (as happened during the
COVID-19 pandemic), natural disasters, strikes, wars, and so on.

12. Why is Financial Management Important?
• Beyond basic survival, good financial management—and financial
management software—can help a company grow and thrive.
• Finance teams have many tools they can use within the business to
help drive growth.
• In good market conditions, with a growing economy and low-interest
rates, finance teams can borrow money from banks, raise funds from
venture capitalists, or take the company public (i.e. sell shares on the
stock market).
• The company can invest these funds for growth by opening new
locations, expanding into other territories, upgrading equipment, and
so on.
• When market conditions are less favorable—for example, during a
recession—financial management tactics might include cutting costs
by laying off workers or closing unprofitable locations.

13. Why is Financial Management Important?
• Improving profitability is an important part of financial management.
• Finance teams often work with sales and marketing teams to set prices
for the company’s products or services.
• They must strike a balance to set the right prices.
• If prices are too high, customers might run to cheaper competitors; too
low, the company might not bring in enough revenue to cover expenses.
• In the same way, controlling costs is also one of the finance team’s key
responsibilities, whether it’s for employees, rent, electricity, raw
materials, or shipping expenses.

14. Why is Financial Management Important?
• Reporting is a key part of effective financial management.
• The CFO and other business leaders want to know how well the
company is performing so they can make the best decisions for the
health of the business.
• They want to know that the business is performing to plan, and that
it’s providing a good return to the company’s investors.
• Good financial management matters because it helps a company to
meet—or even exceed—these goals.

15. Goals of Financial Management in Business
Finance teams have many goals when it comes to financial
management. Their top goals include:
1. Keeping the company solvent by avoiding bankruptcy and ensuring
the business has enough money to continue operating.
2. Maximizing profitability by setting the right price for existing
products and services, discontinuing unprofitable products and
services, and evaluating the potential profit of new products and
services.

16. Goals of Financial Management in Business
3. Minimizing costs by monitoring spending and looking for ways to
reduce overhead.
4. Ensuring a good return on investment (ROI) for venture capitalists,
stock shareholders, and other investors.
5. Raising capital by attracting more investment via positive ROI.
6. Cash forecasting to make sure the organization has enough cash—
not only to function but to invest in growth.

17. Goals of Financial Management in Business
7. Reducing risks and avoiding fines by ensuring the company
complies with the appropriate regulations. Increasingly, this includes
environmental, social, and governance (ESG) planning and reporting.

18. Financial Management Functions
• In smaller companies, one person or a small team of people might perform all
the financial management functions for the business. Larger companies typically
have teams that are responsible for specific functions. These include:
1. Accounting
• This includes tracking, recording, and matching all monetary transactions within
the company. The accounting team is often led by a controller or chief
accounting officer and aided by accounting software.
• They often use cloud ERP systems—in particular, financial systems—to perform,
record, and report on the company’s finances.
• Accounting is also responsible for account reconciliation and closing the books
(see above).
2. Project management
• Projects are a chief source of both income and expenses, especially for
professional services, such as engineers, lawyers, and consultants.
• Finance teams are responsible for allocating budget to a project and overseeing
the revenue each project brings in.

19. Financial Management Functions
3. Procurement
• This is typically divided into two categories:
Direct procurement includes the parts and raw materials used to make a
company’s products.
Direct procurement is typically overseen by supply chain and/or operations
teams who manage and work with suppliers through a procurement system.
The parts, raw materials, and finished products are tracked using an inventory
system.
Having these systems connected to each other makes operations, control, and
oversight of suppliers and inventory much easier.
Indirect procurement refers to supplies that don’t go into a company’s products
and services but are used for day-to-day operations.
These might include items such as office furniture, laptops, and stationery.
Finance authorizes and tracks these purchases using a procurement system.

20. Financial Management Functions
4. Financial planning and analysis (FP&A)
In large companies, this is sometimes a separate team inside the
finance department.
FP&A specialists are responsible for modeling potential scenarios
and forecasting likely outcomes for the best- and worst-case
situations.
They use these forecasts to develop financial plans and budgets for
the next quarter or year.
FP&A professionals often work closely with other parts of the
business to develop forecasts and budgets, including sales plans,
workforce plans, and operational plans.
This is known as connected planning.

21. Financial Management Functions
5. Tax
• Every company must file taxes, but it gets especially complicated for
big companies that must file in different countries.
• Such companies often have specialized tax teams who use tax-
reporting software for country-by-country and other reporting.
6. Treasury
• The treasury department is responsible for tracking and managing
capital assets, debts, loans, and cash in the bank.
• Treasury advises the CFO on how much money is available for things
such as capital investments (for example, big equipment purchases)
or mergers and acquisitions (M&A).
• They’re also responsible for the company’s capital structure (see
below).

22. Financial Management Functions
7. Risk and compliance
• This function manages controls for financial risks—everything from
audits to natural disasters—and reduces the company’s exposure as
much as possible.
• They must also make sure the company follows the rules and
regulations laid out by governments, regulators, and other
jurisdictions to stay in compliance and avoid hefty fines.

23. Types of Financial Management
• In general, financial management is divided into the following types:
Working capital management
• This focuses primarily on day-to-day operations, such as making sure
there’s enough money to pay employees or buy raw materials.
• Working capital encompasses things such as cash on hand, inventory on
hand, or other assets that can be quickly sold to raise money if critical
issues arise.
Revenue cycle management
• This accounts for the revenue a company earns over time by selling its
goods and services. Increasingly, as more companies move toward
selling everything “as a service,” revenue must be recognized in the
monthly or quarterly period in which it’s earned, rather than all at once
at the time of sale.
• This spread out revenue cycle is recognized as monthly recurring
revenue or MRR.

24. Types of Financial Management
Capital budgeting
• This area of financial management is all about identifying what a
company needs financially for it to achieve both its short- and long-term
goals.
• Financial managers use capital budgeting to evaluate the profitability of
investments and/or projects to see if they add value to the business.
Capital structure
• Capital structure is a combination of the debt and equity used to finance
a company’s operations, acquisitions, investments, and growth.
• A company’s capital structure is usually conveyed in a debt-to-equity
ratio.

25. Thank You