August 2, 2021

SB-Accounting

Accounting + Finance Blog

The roles of financial managers in small businesses

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There is no doubt about it that financial managers perform tasks of a manager and finance experts. This duo role makes them who they are. With titles such as Chief Financial Officer (CFO), Chief Financial Controller (CFC), Chief Financial Analyst (CFA). In this lesson, the roles of financial managers based on two-division are explained.

1. Role of management functions
2. Role base on finance functions

Roles of Management Functions

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As a manager, the financial manager of a business is involved in planning, decision making, organizing, and controlling business financial resources to achieve the organization’s goals and objectives.

Planning:

As a planner, the financial manager prepares and presents the business’s financial budget for the year. He does this with the assistance of other managers in the firm. Each department of an organization will prepare its budgets or what it will need for a year. Then, it will send the same to the financial manager. He put the individual budgets together and present it to the board of managers or directors. In doing so, he is planning how personnel will attain the business objectives in the budget year.

Decision making:

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As a manager, or a director, the financial manager involved in deciding how a particular issue may be resolved in an organization. Take, for example, buying a fleet of official cars for directors. He will have to decide if the company’s funds can meet such enormous budget at a time or in piecemeal.

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Organizing:

As a function of the financial manager means that the manager organizes and supervises his subordinates. All accountants and finance personnel report to the financial manager. When It time to compile a budget, he organized the company’s people, to do the task and report the same. Also, he ensures all accounting processes are intact and reports are made available to him at regular intervals.

Controlling:

Here, the financial manager controls all finance-related tasks. In this case, He or she ensures that the financial budget of a firm compared to the actual money spent is examined. And any variation in it is corrected and adjusted or rewarded. This manager also controls all the financial resources of a firm.

Roles base on the finance function

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Here are the finance function of a financial manager

Sourcing for funds

This is generally referred to as the traditional function of a finance manager. In this task, he or she is responsible for providing funds for the company. When a company needs funds for financing a project, it is the job of the finance manager to examine all the sources of funds available to the business and see which of the funds is suitable or optimal for the project at hand.

Allocating funds to Cost Centres

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It is the activities of the finance manager to allocate funds to the various cost centers in the firm. Cost centers are offices, individuals, items, and events that cause the cost to be incurred in an organization. The job of the finance professional is to ensure that each of this centers received funds that are due to it.

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The allocation of funds to cost centers is not an easy one. With a pool of funds at the disposal of the finance manager, deciding which department gets fund is what finance manager does for a business. In most cases, there may not be enough funds to go round. Therefore, the optimum way of using funds must be determined by whoever is responsible for finances.

Maximize shareholders wealth

The finance manager decides whether to pay dividends or gives out capital gains to shareholders. Most times, shareholders prefer dividends at hand now (also called bird in hand). Other shareholders may prefer capital gains. It is the duty of the financial manager to balance these two tastes. And at the same time keep enough profits for growth and expansion of the business.

Dealing with Capital Market

One major function of the finance manager is to deal with capital market operators. He or she should have a regular update on what’s happening in the market. He should know the sell side, the buy-side, hedge fund, and venture capitalist.

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The above people are providers of funds needed by businesses, startups, and companies. Further, the financial manager should know how each fund works and can be used to meet company objectives.

Planning future growth in Profit

Profit is the primary objective of every small business. Maintaining a variable growth in profit is the dream of the entrepreneur and shareholders alike. Therefore, it is the job of the financial manager to plan growth in profit. To achieve this, he or she must consider the major factors that affect profit. These are cost, volume, pricing and the nature of the product. At what level of output does the firm breakeven? How many units of a product must be sold to earn X profits? When such questions are answered, the company can estimate it’s growth opportunities.

What’s Next

The roles of financial managers have been harnessed to a great extent. Roles based on management functions and finance functions were examined and explained. The owners and stakeholders have certain expectations of the finance manager. In the next article, we will discuss the shareholder wealth maximization.

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