A finance manager is a vital role in any organization. They are responsible for managing the financial health and viability of a company. The three main functions of a finance manager are: budgeting, financial reporting and analysis, and cash flow management.
Budgeting
One of the most important jobs of a finance manager is to create budgets. Budgets forecast what revenues and expenses a company can expect in the future. Budgets typically look ahead one year, but some budgets may project further out, like 3-5 years. Budgets allow companies to thoughtfully plan their finances instead of operating reactively.
To create a budget, a finance manager projects future sales and revenue. This revenue forecast is based on examining past sales data and predicting future market conditions. The manager also works with different departments to estimate costs like: materials, labor, rent, supplies, marketing, etc. By comparing projected revenue and expenses, the budget estimates whether the company will operate at a surplus or deficit in the upcoming year(s).
Once a budget is made, the finance manager monitors it regularly to track progress. If revenues fall short or costs exceed estimates, the manager may recommend adjustments to keep the company financially on track.
Benefits of Budgeting
- Plan ahead for upcoming expenses
- Identify potential surpluses or deficits
- Make strategic decisions on spending or cost-cutting
- Monitor organizational performance
Financial Reporting and Analysis
Finance managers are responsible for preparing key financial statements that report on the company’s financial performance. These documents provide visibility into the health of the business. Common financial reports prepared by finance managers include:
- Income statement – Reports revenue, expenses, and profit/loss over a period of time (e.g. quarterly/annually).
- Balance sheet – Snapshot of company assets, liabilities, and equity on a given date.
- Cash flow statement – Tracks money flowing in and out of the business from operations, investments, and financing.
These reports contain valuable financial data for management to make informed business decisions. The finance manager analyzes the reports to identify positive or negative trends affecting the company’s bottom line. This analysis may highlight opportunities to improve profits or cut costs in the future.
In addition to internal reporting, public companies are legally required to prepare audited financial statements and file reports with regulatory bodies like the SEC. The finance manager works closely with auditors to ensure accurate information and compliance with reporting standards.
Benefits of Financial Reporting and Analysis
- Communicate financial health and performance
- Identify changes or trends requiring action
- Inform strategic decisions to improve profitability
- Satisfy regulatory compliance and reporting requirements
Cash Flow Management
Managing cash flow is a critical everyday function for finance managers. Even profitable companies can experience serious issues if cash is mismanaged. The finance manager oversees cash reserves to enable the business to pay immediate expenses, reinvest, and plan for future needs. This involves:
- Monitoring cash balances – Finance managers track incoming funds from revenue and outgoing payments for expenses. If more money is going out than coming in, they may need to find ways to improve cash balances through collection of receivables, cutting costs, securing financing, etc.
- Managing payables and receivables – Invoices owed to suppliers and payments owed from customers impact cash availability. Finance managers create policies around paying invoices on time to maximize vendor discounts. They also establish collection procedures to ensure timely payment from customers.
- Investing excess cash – Cash reserves ebb and flow based on the timing of receivables and payables. When there are cash surpluses, the finance manager invests it strategically, like in short-term, liquid investments to generate interest income while maintaining safety.
- Raising capital – When facing cash deficits, finance managers identify sources of funding for the business, like bank loans or issuing bonds. They manage relationships with lenders and negotiate loan terms.
Smooth cash flow allows the company to meet its obligations, take advantage of opportunities, and handle unexpected costs. By keeping a close eye on incoming and outgoing funds, the finance manager maintains the business’s financial health.
Benefits of Cash Flow Management
- Pay employees, suppliers, expenses on time
- Take advantage of discounts, investment opportunities
- Prevent interruptions to operations from cash shortages
- Prepare for future capital needs of the business
Conclusion
In summary, a finance manager has three main roles:
- Budgeting – Develop budgets to forecast revenues and expenses
- Financial reporting and analysis – Prepare and analyze key financial statements
- Cash flow management – Monitor cash balances and oversee inflows and outflows
These core responsibilities involve planning for the company’s financial stability, providing visibility into financial operations and performance, and managing day-to-day cash availability to meet the business’s ongoing needs. The finance manager is vital to guiding the organization’s overall financial strategy and health.