Financial management is the process of planning, organizing, controlling, and monitoring your financial resources to achieve your financial goals. It involves making informed decisions about how you earn, spend, save, and invest your money.
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What Is Financial Management?
Financial management is the process of planning, organizing, controlling, and monitoring your financial resources to achieve your financial goals. It involves making informed decisions about how you earn, spend, save, and invest your money.
Purpose of financial management:
- Financial management aims to guide businesses and individuals in making sound financial decisions that contribute to their present and future financial well-being. To achieve this, financial management professionals analyze various financial data, including finances and investments, to assist clients in making decisions that align with their goals.
- By implementing a strategic plan for allocating and utilizing financial resources, financial management can enhance financial stability and profitability. The specific approach taken by financial management professionals will vary depending on whether the client is a company or an individual.
Types of financial management:
Financial management professionals guide companies in three key areas of finance: financing, investment, and dividends. These professionals handle decisions related to cash flow, profits, investments, and debt, considering factors like company size, industry, and financial goals to help companies achieve their financial objectives.
A. Financial.
Financial management professionals help companies make informed decisions about acquiring funds, managing debt, and assessing risk when borrowing money for purchases or to expand the business. Financing is also essential for raising capital. By analyzing cash flow, market trends, and other financial indicators, companies can make strategic financing decisions to raise capital or obtain funds effectively.
B. Investment.
Financial management professionals can help companies make informed investment decisions by assessing asset risk and return ratios. They evaluate factors such as profits, rate of return, cash flow, and working capital to determine optimal asset allocation and investment strategies.
C. Dividend
- Companies should establish a dividend disbursement plan and policy with the guidance of a financial management professional. This professional will create and implement the plan, suggest modifications as needed, and monitor payouts when they occur. Since dividends can be used to fund financial decisions within the company, it’s essential to consider dividend payments in all financial planning.
- A flexible long-term plan that can adapt to the company’s growth is crucial. While some mature companies may pay out dividends regularly, others may retain or reinvest dividends during growth phases.
What Is Financial Management Cycle?
- Effective financial management, aligned with an organization’s goals and objectives, is crucial for achieving greater efficiency and stability. To maximize its effectiveness, the various components of the financial management cycle must work in harmony.
- The financial management cycle is a financial planning process critical to a company’s growth and development. It includes:
A. Planning and Budgeting.
In the analytical phase of the financial management cycle, companies use historical and current financial data to establish financial targets, adjust objectives, and revise their existing budgets. This phase requires both detailed planning and a broad perspective, encompassing daily operations, long-term financial strategies, and aligning financial targets with these activities.
B. Resource Allocation.
Financial managers evaluate the worth of capital resources and propose strategies for allocating them effectively, considering factors such as projected company growth and financial objectives. This resource allocation is crucial for establishing a long-term financial plan aligned with business goals. Financial management professionals assist companies by providing a framework for utilizing capital resources and constructing a portfolio that will maximize revenue, taking into account the company’s financial situation.
C. Operations and Monitoring.
This crucial phase helps safeguard against fraudulent activity, errors, compliance issues, or other discrepancies in fund allocation. By conducting regular financial reviews of business operations and cash flow, financial management professionals can proactively mitigate fraud and identify potential problems. This preventative measure ensures the continuity of business operations by upholding the validity and accuracy of the company’s financial processes.
D. Evaluation and Reporting.
- Financial management professionals should evaluate a company’s existing financial management system, identifying areas for improvement and proposing necessary changes. Financial reports and data are crucial for assessing the system’s efficiency and success.
- Key criteria for evaluation include security, compliance, data needs, and support requirements, which vary based on the company’s size, industry, financial situation, and long-term goals.
- Professionals should offer data-driven suggestions to ensure secure storage, compliance with relevant laws, and efficient data utilization.
How To Work In Finance Management?
To pursue a career in financial management, a bachelor’s degree in business, economics, finance, or a related field is essential. While certification is not mandatory, it is strongly recommended to enhance your credentials. Employers often prefer candidates with at least five years of professional experience in finance-related roles, such as loan officer, junior tax accountant, personal finance advisor, or accountant.
Educational Requirements:
A bachelor’s degree in finance, business management, or a related field is typically the minimum requirement for entry-level positions in financial management. However, a master’s degree may be necessary for senior-level roles. Bachelor’s degree programs often include courses in accounting, economics, finance, and human resources. Many bachelor’s and master’s programs offer internships, which are highly recommended for gaining practical experience in the field.
Certifications:
Certification is not mandatory but highly recommended for those seeking a long-term career in financial management. Professional trade organizations often provide specialized certifications tailored to specific job titles or roles. Common certifications held by financial management professionals include:
1. Certified Management Account (CMA) Certification:
The Certified Management Accountant (CMA) certification, offered by the Institute of Management Accountants (IMA), is a valuable credential for individuals seeking careers in financial management. To qualify, candidates must possess a bachelor’s degree and have at least two years of relevant professional experience.
2. Chartered Financial Analyst (CFA) Certification:
The CFA Institute offers the Chartered Financial Analyst (CFA) certification, which focuses on investment analysis. This certification is designed for financial management professionals seeking senior-level roles, such as CFO. To enrol in the CFA program, candidates must meet specific educational and experiential requirements.
3. Certified Government Financial Manager (CGFM) Certification:
The Certified Government Financial Manager (CGFM) certification, offered by the Association of Government Accountants (AGA), is specifically designed for professionals working in government financial management. To qualify for certification, you must have at least two years of relevant professional experience.
4. Certified Treasury Professional (CTP) Certification:
The Certified Treasury Professional (CTP) certification from the Association of Financial Professionals (AFP) is ideal for individuals seeking careers in corporate treasury. It emphasizes risk management, corporate liquidity, and ethical practices. To qualify, you must meet specific educational and experiential criteria, with various pathways available for admission to the CTP program.
Skills:
Successful careers in finance management demand a blend of financial and business acumen. Understanding business operations is crucial, but expertise in accounting, financial analysis, and data analytics is equally vital. Finance management is the intersection of management and finance. Possessing these skills can lead to success in this field.
A. Workplace Skills:
- Good communication.
- Problem-solving skills.
- Organized.
- Quality leader.
- Proficiency in public speaking and presentation.
- Ability to manage a group of people.
- Detail-oriented.
- Analytical skills.
- Strong decision-making skills.
- Ethical.
B. Technical Skills:
- Basic and advanced math skills (algebra, statistics, basic computing).
- Computer skills.
- Proficiency in financial management systems.
- Understanding of statistical modelling software and spreadsheets.
- Industry-specific knowledge.
- Proficiency in accounting principles and techniques.
- Understanding investment principles.
Experience:
To progress to higher-level finance management roles, relevant experience in finance or business management is crucial. Aim for at least five years in entry-level to mid-level finance positions before considering finance management. As finance management involves managerial responsibilities, both experience and education are essential. The quality of your experience, rather than just the quantity, is vital. Seek jobs in finance or accounting, and ideally within your desired industry.
Careers In Finance Management:
The finance management field offers a wide range of career opportunities, from entry-level bookkeeping to executive positions like financial manager or management accountant. Your ideal career path will depend on your education, certifications, work experience, industry, employer, and location. Salaries in finance management vary based on these factors, with senior roles like CFO and vice president of financial planning and analysis commanding the highest compensation.
A. Entry-Level Positions:
- Bookkeeper: ₹2.5 – ₹4.5 lakhs.
- Accounting Clerk: ₹2.5 – ₹5 lakhs.
- Financial Analyst: ₹3 – ₹7 lakhs.
B. Mid-Level Positions:
- Financial Analyst: ₹5 – ₹10 lakhs.
- Accountant: ₹4 – ₹8 lakhs.
- Budget Analyst: ₹4 – ₹7 lakhs.
- Cost Accountant: ₹4 – ₹7 lakhs.
- Credit Analyst: ₹3 – ₹6 lakhs.
- Financial Controller: ₹7 – ₹12 lakhs.
C. Senior-Level Positions:
- Financial Manager: ₹10 – ₹15 lakhs.
- Management Accountant: ₹10 – ₹15 lakhs.
- Treasurer: ₹12 – ₹20 lakhs.
- Chief Financial Officer (CFO): ₹25 – ₹50 lakhs or more.
- Vice President of Financial Planning and Analysis: ₹20 – ₹40 lakhs.
