The function of finance is to effectively manage a company’s financial resources to achieve its goals, from acquiring funds, making investment decisions, and managing cash flow while ensuring a healthy return on invested capital.
Primary Implication
A business that runs out of cash is out of business.
Proactive financial planning, directing, monitoring, organizing, and controlling the monetary resources of a business is how you avoid running out of cash—the number one cause of business failure.
Overview
What is the Function of Financial Management?
Financial management involves planning, controlling, and wisely using a company’s money. It is essential for keeping a business running smoothly and achieving its wealth creation goals.
Key Functions of Financial Management
Financial management involves several important tasks:
- Finding Funding: Deciding when, where, and how to get money (through debt or equity).
- Staying Afloat: Managing cash flow to ensure the business can pay its bills and avoid going bankrupt.
- Investing Wisely: Allocating funds to long-term assets that will generate the best returns. This also includes deciding when to sell off underperforming assets.
- Profit Distribution: Determining how much profit to share with owners (dividends) and how much to reinvest back into the business.
Key Roles in Financial Management
As businesses grow, they create a finance department with the following specialized roles:
- Chief Financial Officer (CFO): The CFO is the top financial leader, responsible for overall financial strategy, planning, reporting, and risk management.
- Controller: The controller focuses on financial health by managing budgets, financial reporting, and ensuring compliance with regulations.
- Treasurer: The treasurer manages cash flow, makes sure the company has enough money on hand, and interacts with banks and investors.
- Financial Analyst: Analysts analyze financial data, track performance, and create forecasts to help managers make informed decisions.
Building a Finance Function
In the early stages, business owners handle all these financial tasks themselves. As the company grows, they often bring in outside help, such as an accountant. Eventually, a dedicated finance department with specialized roles becomes necessary to manage the increasing complexity of the business’s finances.
