A financial manager must produce financial reports, direct investment activities and develop strategies to ensure the long-term financial health of the organization. Because they have the strongest grasp of a company's finances of anyone in an organization, they also help executives make decisions that involve the company's future.
TL;DR (Too Long; Didn't Read)
A financial manager's main goals are planning, containing costs, managing cash flow and ensuring legal compliance.
What Is a Financial Manager?
A financial manager is responsible for monitoring the financial health of an organization using financial reports. When things are going well, they direct investment activities and develop plans that can help maintain and improve the financial status of the company. When things are going badly, they develop strategies to improve the company's finances not just in the short term but in the long run as well. They often use their knowledge of a company's finances to help advise executives on business decisions.
Duties of a Financial Manager
Financial managers must oversee the creation of many reports, including financial statements, business activity reports and forecasts based on current trends. Other employees who do financial reporting and budgeting must report to the financial manager, who operates as their supervisor. They must ensure that legal requirements regarding the company's finances are being met, such as taxes and employee wages.
Aside from compiling reports, financial managers must be able to come up with ideas to help the company based on data. They must review company financial reports and help find ways to reduce costs. They look at industrywide market trends to help find new opportunities for expansion or acquisitions. Finally, they have to help management make decisions that have a financial aspect.
In recent years, the specific duties of a financial manager have changed due to technological advances that reduce the amount of time necessary to prepare financial reports. Whereas creating these reports once took up the bulk of a financial manager's time, now the primary goals of business finance managers are to analyze reports and advise senior managers on how to maximize profits. As a result, they are increasingly being asked to serve as advisers that help executives make decisions that will affect the entire organization.
A financial manager's role will also change as a company grows. When companies are small, they may outsource many duties that may eventually be brought in house and added to the financial manager's roster of duties. If a company becomes large enough, they may even need a full team of financial managers to process and analyze all the financial data.
Goals of Financial Management
The long-term objective of financial management is ultimately to help the company maximize profits. In order to do that, a financial manager needs to focus on smaller, more specific goals of financial management: planning, cost containment, cash flow management and legal compliance.
A financial manager differs from an accountant in that he will focus on planning a long-term financial strategy, assigning the actual bookkeeping work to his underlings. These plans can include setting targets for limiting overhead costs, production expenses and debt-serve management as well as achieving specific revenues, profit margins and gross profits. He will also need to make plans for the right investment options if a company ends up having any excess profits. Additionally, he may discover ways for the company to acquire the capital necessary for expansions or acquisitions.
In order to make these plans, he will need to create a master budget known as a budget variance analysis that takes into account the company's balance sheet, accounts receivable and payable reports, cash flow records and profit and loss statements. The financial manager will regularly review this budget variance analysis to decide if the actual performance of the company is meeting its projections, and if not, he will help determine what changes should be made.
Cost containment goes beyond simply setting spending levels and creating cost-cutting measures. A financial manager must also create requests for proposals, bidding processes and purchasing policies for contractors, vendors and suppliers. This is the only way to ensure that the company gets the best combination of quality and price.
A financial manager will also look at the company's current and future resource needs to determine if it is better to perform activities in house or to outsource the work. The financial manager also needs to manage the company's debt and taxes to minimize interest payments and tax liability.
Cash Flow Management
Cash flow is the actual receipt of money and payment of bills as opposed to the company's budgeted income and expenses. Managing the company's cash flow is one of the most important duties of a financial manager. While a company might be owed a certain amount by customers, it is irresponsible to assume it will get that money in time to pay off bills before they become due. The goal of a company's cash management policy is to make sure there is always enough money to pay the bills by keeping enough credit and cash reserves in order to keep the company financially stable.
A financial manager must make sure the business meets all legal obligations related to finances, including payment of sales and income tax, employee benefits, state and federal wage requirements and reporting to the Securities and Exchange Commission if the company is a public corporation. The financial manager must also ensure the company meets industry-specific laws. To handle these legal obligations, a financial manager might work with an internal team or consultants including tax experts and CPAs.
Industry-Specific Financial Managers
Because different types of companies have different financial needs, some financial managers specialize in particular industries. These specialized financial managers must have industry-specific knowledge to handle their businesses' unique needs, including regulations, procedures and tax laws. For example, government financial managers must know about government appropriations and budget processes. Similarly, a financial manager working in a health care insurance company must make sure that, as dictated in the Affordable Care Act, no more than 20 percent of premiums are used to cover administrative costs, including profits and salaries. The rest must be spent on medical claims and quality improvements for members.
Types of Financial Managers
There are many duties that may fall to a financial manager, far more than any one person could actually handle. That's why financial managers usually have a different actual title based on their specific duties and focus. Some of the most common types of financial managers include controllers, treasurers/finance officers, credit managers, cash managers, risk managers and insurance managers.
Controllers direct the preparation of financial reports, including any special reports required by governmental agencies that regulate the business. They often oversee accounting, audit and budget departments.
Treasurer and finance officer are two names for financial managers who oversee the investment of funds and direct an organization's budgets so it can meet its financial goals. They can raise capital through means like issuing stocks or bonds in order to support expansions and develop financial plans to manage mergers and acquisitions.
Credit managers oversee a firm's credit operations by setting credit rating criteria, deciding on credit limits and monitoring the collections of past-due accounts. Similarly, cash managers control the flow of cash coming in and out of the company by doing things like projecting cash flow in order to determine if the company will have enough cash to pay its bills or if it will have more cash than needed and thus need to invest some of it.
As the name implies, risk managers control risk in order to limit or offset losses or financial uncertainties due to factors such as currency or commodity price changes. Insurance managers attempt to limit a company's losses by obtaining insurance against risks like employee injuries and lawsuits.