Functions of a Financial Manager in an Organization

What are the functions of a financial manager? Duties of a financial manager? This article will help you to understand the functions of financial managers in an organization.

A good financial manager can help the progress and rise of a collection and organization with intelligence and wisdom, and in the opposite case, it can cause the decline of an organization. If you are interested in knowing about the duties of a financial manager, or if you have an organization for which you are going to hire a financial manager.

Functions of a Financial Manager

Here are the functions of a financial manager that he or she has in an organization.

1. Funding for a new company 

The initial budget for new businesses is usually provided by borrowing. Let’s say you are going to start a company and run your dorm room. The original idea for starting this business came to you when you were looking for relatively clean clothes in a pile of clothes so you would not have to throw them in the washing machine.

You thought to yourself, “It would be great if there was a simple laundry service system in the dormitory that would come and pick up my dirty clothes and return them to me washed and folded.” Since, like most people, you didn’t have the guts in your student life, you were very motivated to start a money-making business. So laundry services seem to be a good option.

2. Financial Planning

Because you did not want your business to be small enough to be under the microscope of your classmates and potential customers, you knew you had to budget to get started. So what is your budget? To answer this question, the CFO does financial planning – it is a document that has two functions:

• Calculating the amount of capital or budget that a company needs for a given period;
• Detailed description of capital acquisition strategy.

3. Selling Estimates and Costs You start

your business by estimating sales (in this case, revenue from washing clothes) for the first year of your operation. This is the most important estimate you can make. Without a realistic sales estimate, a financial manager cannot accurately calculate equipment needs and other costs. To predict sales for this example, you need to estimate two digits:

The amount of clothes you can wash;

The cost of each laundry. (Bar: means a certain amount of clothing. You can consider the amount of clothing that fits in a washing machine as a reference.)

You do the following:

It is estimated that 5% of the ten thousand dormitory students will use these services. These 500 students have a large laundry once a week out of the 35 weeks they are in the dormitory. So, you will wash 17,500 times (500 * 35 = 17500 times). You consider the price of 50 thousand tomans each time. At first glance, the price may seem high, but when you think about having to pick up clothes, wash, dry, fold and return this big load, the price seems reasonable.

The important part is when you estimate your expenses – including salaries (for some students who work), rent, facilities, equipment depreciation and a pickup truck, procurement, maintenance and repair, insurance and advertising – and you realize that each cost is 45 thousand tomans. It can be and it will be a profit of 5 thousand dollars for each time and in the first year it will bring you 87 million and five hundred thousand tomans (which is worth your time, but it is not enough to make you rich).

What do you need to buy to get started? Using your sales estimate, you have determined that you need the following:

• 5 washing machines and 5 dryers;
• A van to deliver the clothes (the second pickup truck is currently in operation);
• List of laundry detergents and other accessories such as laundry baskets;
• Rent space in a nearby building (which requires little work to prepare for a laundry).

And you need cash – cash for when the business starts and to pay for it. Finally, it’s best not to spend too much money on the day – things you don’t expect, such as water spilling over and damaging the floor. Your next task is to find out where you can get this initial cost. In the next section, some options will be introduced.

4. Funding

The figure below summarizes the results of a study in which small and medium business owners were asked where they usually provide their own funding. To simplify the matter, we work on the principle that new businesses generally fund themselves with a combination of the following:

• Personal Assets Owners
• Borrow from Family and Friends
• Bank Loans
• Find an investor.

Keep in mind that a business needs a lot of cash during its start-up period: the business will not only incur significant start-up costs, but may even experience operating losses.

Personal assets

are the most important source of funding for new business owners. As homeowners work harder with significant investments to make their company successful, lenders expect owners to raise a significant amount of money to get started. Where does this money come from now? Usually through personal savings or the sale of personal assets.

Borrow from family and friends

For many entrepreneurs, family and friends are the next choice. If you have a business idea, you might want to convince your family and friends to either invest in it (as a partner) or lend you some money. Remember that family and friends are like any other creditor: they expect their money back and they expect a profit. Even when you borrow money from family or friends, you should make a formal loan agreement that states when you will repay the money and specify the amount of interest.

Bank loans

The financing package for a startup company probably includes bank loans. However, banks will only lend to you if they are convinced that your idea is commercially viable. They also prefer you to have a combination of intelligence and experience to run a successful company. Bankers want to see a business plan that is well-structured and has detailed financial estimates that show your ability to repay the loans. Financial institutions offer different types of loans with different repayment periods. However, most of them have some features in common.

When taking a bank loan, pay attention to the following:

Conclusion: When taking out a loan, you must adjust the terms of the loan to your purpose. For example, if you borrow money to buy a van that you plan to use for five years, you apply for a five-year loan. For short-term needs such as purchasing goods, you may apply for a one-year loan. However, for any loan, you need to consider the ability of the business to repay it. If you expect to lose money in the first year, it is clear that you will not be able to repay the one-year loan on time, and it is in your best interest to provide a medium-term or long-term budget. Finally, you need to consider depreciation. Will you have periodic payments (for example, monthly or quarterly) for both the principal and interest of the loan? Or is the full amount (including interest) paid at the end of the loan period?

Guarantee: The bank will not lend to you unless it thinks your business can generate enough capital to repay it. However, most banks are more cautious and ask you for a guarantee – a business or personal asset that is called collateral and you pledge to secure a loan repayment. You may have to guarantee the loan with the company’s assets such as goods or accounts receivable or even with personal assets. In any case, the general rule is simple: ‌ If you do not repay your loan on time, the bank can take ownership of the collateral, sell it, and keep its income to repay the loan. If you do not have to repay the loan, you will receive an unsecured loan, but because new businesses are associated with inherent risk, banks often do not provide such loans.

Profit: Profit is the cost of using someone else’s money. The loan interest rate varies based on several factors: the overall interest rate, the size of the loan, the quality of the collateral and the ability of the borrower to pay the debt.

5. Business Financing

Going forward during the two-and-a-half year growth phase : It makes you happy that your laundry business is booming. You’ve hired an estimated 500 customers in six months, and over the next few years, you’ve expanded your business to four other universities. You now serve at five universities and have about 3,000 customers a week. Your management team has expanded, but you are still in charge of the company’s finances and, in fact, the CFO. In the following, we will review the duties of a financial manager in a high-growth business.

Cash

Management Liquidity management means monitoring the inflows and outflows of money to ensure that your company has enough cash – but not extra – to meet its obligations.

In order to be able to spend your time on more important matters, we suggest that you seek the help of accounting service providers and review only the final financial statements for key decisions. When liquidity indicates a shortage in the future, you go to the bank to attract more capital; When it comes to reporting that you have extra money, you can invest in it.

Managing accounts receivable

Because you send bills to your customers every week, your accounts receivable increase. You make a significant effort to collect accounts receivable on time and to minimize unpaid bills, in other words, to reduce the collection period of your receivables because you need cash in the business you have started.

Budgeting

It is a preliminary financial plan for a fixed period of time, generally one year. At the end of the course, you compare your actual and estimated results and then examine any differences. You prepare several types of budgets: estimated financial statements, cash budgets that estimate liquidity, and capital budgets that show the expected costs for the main equipment.

Search for private investors

So far, you have been able to raise funds for your company from the profits and bank loans. Your success, and especially the expansion of your work at other universities, is a testament to the extraordinary business thinking that has come to your mind. You are anxious to grow your business further. To do this, you need a significant injection of new cash. Most of your profits go back into the company, and your parents can’t lend you more money. 

After thinking about this for a while, you will realize that you have three choices:

• Ask the bank for more money;
• Get more employers who can invest in the company;
• Seek capital from a private investor.

Finally choosing the third option. However, you must first decide what kind of private investor you want – angel investor or venture capitalist. Angel investors are usually wealthy people who are willing to invest in startup companies that believe in their success. They stipulate that the business will eventually be very profitable and that they will eventually be able to sell their shares at a high profit.

Venture capitalists raise capital from private and corporate sources (such as pension funds and insurance companies) and invest it in exciting businesses with high growth potential. They are generally willing to invest more, but they want their money back sooner than angel investors.

There are some drawbacks. Both types of private investors provide business expertise in addition to funding, and in fact both become partners in the institutions in which they invest. They only accept the most promising opportunities, and if they decide to invest in your business, they want something in return for their money; For example, the right to comment on how to tell you how to run your business.

When you go to private investors, you can be sure that your business plan will be carefully considered. You are a little more demanding and you want to increase the number of universities where you serve from 5 to 25. So you need more liquidity. By weighing the options and considering the amount of loan you need, you decide to go for a venture capitalist. Fortunately, because you have a great business plan and a good presentation, your application will be accepted and your business will start expanding.

Let’s go public for another five years. You have worked hard (and been lucky). Also, your company is doing exceptionally well and you have services in more than five hundred universities. You have invested in your continuous and powerful growth by combining the assets of venture capitalists and the capital that has been generated internally (income that has been reinvested).

So far, you have worked as a private limited company (you and your partners are the sole shareholders). But because you expect your business to grow even bigger and bigger, you are thinking of selling stocks to the general public for the first time. Do not forget to do this, you must provide accurate reports of the company’s financial and tax situation. As the legal complexity of this process is high, you can get help from tax service providers.

By publicizing a company, you get a huge flood of cash that is not from borrowing but from selling shares, has no interest and does not need to be repaid. There are problems again. First of all, publicizing a company is very costly and time consuming. Secondly, from now on, your financial results will be public information. And finally, you are responsible for the stakeholders who want to see the results of short-term performance that raises stock prices.

After evaluating the pros and cons, you decide to go it alone. Get help from financial consulting firms to help you identify the best time to start offering a stock and its legal process.

Skills required of a financial manager

1. Leadership 

A financial manager is the head of the financial or accounting departments of an organization that requires leadership skills and the ability to manage the activities of others. A leader must be able to both supervise staff and delegate tasks to other skilled financial staff.

2. Communication and business skills

One of the duties of a financial manager; Simple expression of complex financial information for operations managers. Written and oral communication skills are essential in this situation. Financial managers work with other managers in the company so they must have business knowledge and understanding of different parts of the organization.

3. Analytical Skills

Financial managers must have analytical skills to investigate the root cause of a problem and arrive at a solution in the organization. The financial manager of a business is a problem solver and must use creativity and financial knowledge to solve the company’s problems.

4. The interpersonal skills

These skills of a financial manager in a company interact with employees and the management team in all aspects of the business. Therefore, it requires interpersonal skills. Interpersonal skills are an important feature when directing employee activities. These skills also come in handy when working on a team to solve financial problems in the organization. The financial manager must be able to communicate with other employees, whether to oversee their activities or to work on a project on their own.

5. Career knowledge

A financial manager must have a degree in finance, accounting or economics to work in such a position. In international companies, the financial manager must have knowledge and expertise in international finance and the global economy; And that means a financial manager must be fully aware of the rules and regulations.

The financial manager’s specialized skills must continue to pursue job knowledge and training throughout his or her career in order to survive. In addition, five financial managers may be looking for specialized courses such as information technology to advance their careers.

Finally, the role of financial manager in any organization, large or small, is undeniable, but having a financial department for small and medium-sized companies will be very costly, and the best solution is to outsource the financial sector to an accounting firm.