Financial Management Challenges
Decades of analyzing and evaluating performance data have helped businesses understand the tools necessary to maintain solvency. However, modern-day financial management still poses specific challenges to department heads. These operating obstacles include record keeping, financial reporting and regulatory compliance. Other financial hurdles relate to borrowing arrangements, financial analysis and operational funding.
In the corporate context, financial managers take the issue of accurate record keeping seriously, mainly because they understand it all starts from there. A company that thrives and grows can only convince the outside world of its marketing prowess if it can correctly record operating transactions. Managers rely on a team of accountants and bookkeepers whose interdisciplinary background combines analytical skills with financial acumen to record transactions. Bookkeepers post corporate economic events by debiting and crediting financial accounts, such as assets and liabilities.
Organizations that do not present their financial data in a timely manner often face a defiant tone from the investment community. Unhappy corporate financiers, who may equate reporting delays with sluggish performance, could demand a leadership reshuffle if the business consistently misses its reporting deadlines. To speed things up, company principals may let segment chiefs win a voice in decision making at every stage of the reporting process. By so doing, business-unit supervisors can work with department heads to ensure swift publication of corporate data.
In modern economies, raising cash for operating activities is a subject that lies on top of management's agenda. Without money in corporate vaults, a company cannot go far in its economic adventure and may drop out of the competitive landscape. Financial management personnel help corporate executives find funds necessary to engage in effective research-and-development activities and create one breakthrough product after another.
Financial analysis enables accounting managers to pinpoint business units that are struggling, comparing segment current data to historical information. By doing so, financial supervisors can find ways to prop up business units. In other words, financial managers work under the guidance of senior management to shield segments from financial turmoil, especially those that were previously the company's breadbasket. Financial analysis requires the use of performance metrics, such as inventory-turnover ratio and debt coverage ratio. Inventory-turnover ratio equals costs of goods sold divided by inventory. Debt coverage ratio, a solvency measure, equals net profit plus noncash expenses (depreciation, for example) divided by total debts.
How do you run efficient, profitable businesses without running afoul of the law? These days, this is often the dilemma that financial managers must cope with. In a global economy replete with international exchanges, managers must carefully pick foreign business partners and make sure overseas commercial practices do not break domestic laws.