what is financial management?

Financial management refers to the process of planning, organizing, directing, and controlling an organization’s financial resources. It involves making decisions about how to acquire, allocate, and use funds to achieve the organization’s goals and objectives effectively. Financial management is essential for both businesses and individuals, and it plays a crucial role in ensuring the financial health and success of an entity.

Importance of financial management.

  1. Resource Allocation: Financial management helps in the efficient allocation of resources. It ensures that funds are directed towards projects and activities that are most likely to yield a high return on investment, thus optimizing the use of available resources.
  2. Financial Stability: Effective financial management helps in maintaining a stable financial position. It enables organizations and individuals to plan for and navigate economic downturns, emergencies, and unexpected expenses without incurring significant financial strain.
  3. Goal Achievement: Financial management allows for the setting and achievement of financial goals. Whether it’s a business aiming to expand, an individual saving for retirement, or a family planning a vacation, effective financial management helps in realizing these objectives.
  4. Cost Control: It aids in controlling costs by identifying areas of overspending and implementing strategies to cut unnecessary expenses. This is crucial for businesses to maintain profitability and for individuals to increase their savings.
  5. Investment Decisions: Financial management plays a key role in investment decision-making. It involves assessing the potential risks and returns of various investment opportunities, whether in stocks, bonds, real estate, or other assets.
  6. Cash Flow Management: Managing cash flow is vital for both businesses and individuals. Financial management ensures that there is enough cash available to meet day-to-day expenses, pay bills, and invest in opportunities.
  7. Debt Management: For individuals and organizations, debt can be a useful tool when managed effectively. Financial management helps in understanding and optimizing debt levels, interest costs, and repayment schedules.
  8. Risk Management: Financial management involves assessing and managing financial risks. This includes strategies to protect against unforeseen events, such as insurance coverage for businesses and diversified investment portfolios for individuals.
  9. Compliance and Accountability: Financial management ensures that organizations and individuals adhere to financial laws and regulations. This is essential for maintaining a good reputation and avoiding legal issues.
  10. Strategic Planning: For businesses, financial management is integral to strategic planning. It helps in setting long-term financial goals, expanding into new markets, and making decisions about mergers and acquisitions.

Let’s take a deeper look at the scope of financial management to gain a greater understanding of its importance.

Financial management scope

Financial management in a company is governed by the principle that it must protect the financial interests of the investors, shareholders, and ensure business growth. Apart from securing their interests, the financial managers are also expected to ensure greater ROI that generates more wealth for all shareholders. There are certain objectives of financial management which are universally accepted by experts and business leaders, and these clearly outline the financial management scope and functions.

Objective of financial management

To achieve these objectives, the financial managers and advisors must perform certain functions. These include:

Fundraising – For any business to grow confidently and have a good market reputation, adequate amount of cash and liquidity is critical. Therefore, businesses raise funds by equity or debt financing. Financial managers take decisions on maintaining a healthy balance between debt and equity to ensure that the company’s financial health is not impacted.

Fund allocation – Smart fund allocation is as critical to a business’ financial health as fund-raising itself. The funds that a company has must be allocated in the best way possible after due diligence on:

  • Business size and growth potential
  • Whether the assets are short-term or long-term before spending on them
  • Mode of fund raising

Profit Planning – Unless it is a social organization, earning more profits would be among any business’s primary goals. The profits a company makes, determines its financial health and future growth. Therefore, adequate usage of the money generated as profit is needed. Whether they have to be ploughed back to acquire assets and expand coverage, or to be spent on marketing, acquiring other businesses or invested to act as a buffer resource, all these considerations are made by financial leaders.

Understanding Capital Markets – A company’s shares are publicly traded on stock exchanges, and the transactions as well as the change in a listed company’s market capital is a constant phenomenon. Good financial managers have to be well-versed with the capital market dynamics, and the risks associated. Whether dividends are to be given to the shareholders when business generates profits or reinvested into the business, is one of the crucial decisions that can impact shareholders’ sentiments and company’s goodwill.

Career opportunities in financial management

Since financial management is integral to any business, and there are huge opportunities in the financial sector verticals such as accounting, banking, insurance and other financial companies, there are various career options available in the field.  We’ve curated a few lucrative opportunities in financial management for you:

Corporate finance roles

Corporate finance is one of the financial roles pertaining to raising funds for the business operations. Corporate finance professionals have to manage funding sources, investment decisions, capital restructuring, while focusing on the following parameters.

  • Striking a balance between risk and profitability
  • Analysing and forecasting economic trends in the industry
  • Analysing company’s reports and making improvement related suggestions
  • Enhancing the value of stock
  • Fund management through selection of investment portfolios
  • Focusing on actions that mitigate financial risks for the company

There are both leadership as well as junior level job opportunities for corporate finance professionals. To prepare yourself for the role, it is best advised to undergo a professional financial management course that will impart necessary know-how regarding the importance of financial management in the corporate financing sector.

Investment Banking Roles

One of the most rewarding and reputed careers in the finance management sector is in the field of investment banking. Investment banking professionals handle financial restructuring of companies and they use data and technologies to generate insights and make impactful financial decisions. Investment banking requires good understanding and a passion for financial markets and economic trends. Trading and stockbroking, and asset management roles are also a part of this segment. While stockbrokers make stock market transactions on behalf of their clients, the asset management companies determine the investment portfolios over longer periods and diversify client investments with an aim to mitigate risk and deliver superior ROI.

A diploma in banking and finance or a financial risk management course would be an ideal value addition for job seekers in this segment.

Portfolio Management – In the modern world of financial operations, a hybrid of commerce and science has emerged as portfolio management. It is an advanced field that requires sound knowledge of mathematics, business operations, and data analytics. A portfolio manager would be entrusted with guiding business policies related to investments, and asset allocation decisions. He/she would also conduct SWOT analysis across markets and focus on factors such as growth vs safety, debt risks etc.

Risk Management

With constantly changing market dynamics, and other socioeconomic and political variations, risk management has become a crucial part of the financial sector operations. Professionals in this field use their mathematical expertise, analytical skills, reasoning ability and market understanding to advise their clients. There are various types of risk management roles such as:

  • Financial Risk Manager
  • Enterprise Risk Manager
  • Supply Chain Risk Manager
  • Operational Risk Manager
  • Digital Risk Manager

Risk management jobs are richly paying and there are ample opportunities in NBFCs and insurance sector for risk management roles such as analysts, managers, consultants and advisors etc.

A financial risk management course would be a perfect value addition to an accounting qualification or an MBA degree.

Financial Planning

Financial planners are in high demand these days. Individuals as well as companies are availing the services of financial planners to optimize their investments and savings, to ensure future financial safety. Financial planners need to be experts in analysing financial statements, income flows, expenses, and creating a customized solution that matches a client’s needs. There are various segments of financial planning such as wealth management, tax planning, retirement planning, investments etc. The aspirants can work as self-employed financial planners, launch a financial planning startup or work in businesses such as the Knowledge Process Outsourcing (KPOs), NBFCs, Asset Management Companies (AMCs), or wealth management and financial services companies.

A masters degree in finance or PGDM Finance along with an MBA would make a person a good hire in this arena.

Commercial Banking Sector

Banks are a key enabler of financial support to individuals as well as businesses. From maintaining savings and current accounts, debit, and credit cards, to offering personal, home, education or business loans, the banks are a key to everyone’s financial journey. The banking jobs are respected, offer good salaries and fixed working hours. Nowadays, having technological expertise alongside an MBA degree can make a person highly employable in this arena.

Compliance and Internal Financial Management

Companies also employ managers and financial administrators to handle various procedures and regulations such as law adherence, ethical operations, compliances to industry standards, and reputation management etc.

These roles are best suited for people with college degrees in accounting and law. By adding a sector specific qualification such as diploma in financial accounting, one can grab attractive internships or job opportunities in this arena.

Functions of financial managers and advisors

To achieve these objectives, the financial managers and advisors must perform certain functions. These include:

Fundraising – For any business to grow confidently and have a good market reputation, adequate amount of cash and liquidity is critical. Therefore, businesses raise funds by equity or debt financing. Financial managers take decisions on maintaining a healthy balance between debt and equity to ensure that the company’s financial health is not impacted.

Fund allocation – Smart fund allocation is as critical to a business’ financial health as fund-raising itself. The funds that a company has must be allocated in the best way possible after due diligence on:

  • Business size and growth potential
  • Whether the assets are short-term or long-term before spending on them
  • Mode of fund raising

Profit Planning – Unless it is a social organization, earning more profits would be among any business’s primary goals. The profits a company makes, determines its financial health and future growth. Therefore, adequate usage of the money generated as profit is needed. Whether they have to be ploughed back to acquire assets and expand coverage, or to be spent on marketing, acquiring other businesses or invested to act as a buffer resource, all these considerations are made by financial leaders.

Understanding Capital Markets – A company’s shares are publicly traded on stock exchanges, and the transactions as well as the change in a listed company’s market capital is a constant phenomenon. Good financial managers have to be well-versed with the capital market dynamics, and the risks associated. Whether dividends are to be given to the shareholders when business generates profits or reinvested into the business, is one of the crucial decisions that can impact shareholders’ sentiments and company’s goodwill.

Explore learning options in financial management

Learning options in financial management are diverse, ranging from formal education to self-paced online courses and certifications. Depending on your goals, prior knowledge, and availability, you can choose the learning option that best suits your needs. Here are some popular learning options in financial management:

  1. Bachelor’s Degree in Finance: Pursuing a Bachelor’s degree in finance or a related field is an excellent choice if you’re looking for a comprehensive education in financial management. Many universities and colleges offer finance programs, covering topics like corporate finance, investment analysis, and financial planning.
  2. Master’s in Finance or MBA: For those seeking advanced knowledge and better career prospects, a Master’s in Finance or a Master of Business Administration (MBA) with a finance concentration is a valuable option. These programs provide in-depth knowledge and often include practical experiences through internships and projects.
  3. Online Courses and MOOCs: Various online platforms offer courses in financial management. Websites like Coursera, edX, and Udemy provide courses on topics like financial planning, investment analysis, and financial modeling. These courses are often self-paced, allowing you to learn at your own speed.
  4. Financial Management Certifications: Earning certifications can enhance your credibility and skills in financial management. Some notable certifications include:
    • Chartered Financial Analyst (CFA): Focuses on investment management and analysis.
    • Certified Public Accountant (CPA): Covers accounting and financial reporting.
    • Certified Financial Planner (CFP): Specializes in personal financial planning.
    • Financial Risk Manager (FRM): Concentrates on risk management in finance.
    • Certified Management Accountant (CMA): Focuses on management accounting and financial strategy.
  5. In-House Training: Many organizations offer in-house training programs or workshops for their employees in financial management. These programs are often tailored to the specific needs of the organization and are a valuable resource for those in the corporate world.
  6. Financial Books and Publications: There are numerous books and financial publications that cover a wide range of financial management topics. Some classic texts, such as “Principles of Corporate Finance” by Brealey and Myers, are widely used for academic and professional learning.
  7. Financial Workshops and Seminars: Participating in financial workshops and seminars, often hosted by professional organizations and financial institutions, can provide practical insights and networking opportunities.
  8. Financial Blogs and Podcasts: Following financial blogs and podcasts can be an informal but informative way to stay updated on financial management topics and trends.
  9. Internships and On-the-Job Training: If you are looking to work in financial management, consider seeking internships or entry-level positions in financial roles. Learning by doing can be highly effective, and many employers offer on-the-job training.
  10. Professional Associations: Joining professional associations like the CFA Institute, American Finance Association, or Financial Planning Association can provide access to resources, conferences, and networking opportunities.

When choosing a learning option, consider your career goals, available time, and budget. Additionally, it’s often beneficial to combine formal education with practical experience and continuous learning to stay current in the field of financial management

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