What Is Finance Management
Finance management is managing a person, company or organisation's finances, including budgeting, forecasting, and investing to achieve financial goals and maximise wealth.
Purpose of Finance Management
The purpose of financial management is to ensure the effective and efficient use of financial resources to achieve organisational objectives such as:
- Maximising shareholder value
- Ensuring financial stability
- Meeting financial obligations
- Investing in growth opportunities
- Achieving financial goals.
Types of financial management
There are two types of financial management:
- Corporate finance: deals with financial decisions made by companies to maximise shareholder value.
- Personal finance: deals with financial decisions made by individuals to manage their finances.
Financial, investment and dividend: Definition
- Financial: managing money and the financial resources of an individual, business or government.
- Investment: the action or process of investing money for profit or material result.
- Dividend: a portion of a company's profit paid out to its shareholders as income distribution.
Financial management cycle
The financial management cycle refers to planning, organising, controlling and evaluating a company's financial resources. The typical steps in the financial management cycle are:
- Planning: setting financial goals and determining how to allocate resources to achieve them.
- Budgeting: creating a plan for revenue and expenses to achieve the financial goals.
- Forecasting: estimating future financial performance based on historical data and current trends.
- Accounting: recording and reporting financial transactions.
- Analysis: evaluating the financial performance and position of the company.
- Control: monitoring and adjusting financial activities to ensure they align with the financial goals and plan.
- Decision making: using financial information to make informed decisions about investments, financing, and other economic activities.
- Evaluation: regularly reviewing the financial management cycle to assess its effectiveness and make improvements.
How to work in finance management
To work in finance management, one may follow the following steps:
- Education: Acquire a bachelor's degree in finance, accounting, business, economics or a related field. Consider pursuing a master's degree for advancement.
- Gain experience: Start with entry-level positions in finance or accounting and gain expertise in financial analysis, budgeting, and forecasting.
- Build professional skills: Develop strong analytical, communication, and problem-solving skills, as well as a thorough understanding of finance and accounting principles and tools.
- Network: Attend industry events, join professional organisations, and establish connections with finance professionals.
- Stay up-to-date: Keep up with changes in financial markets, regulations and best practices through continuous learning and professional development.
- Specialise: Consider specialising in a particular area of finance, such as investment banking, risk management, or financial planning and analysis.
- Obtain certifications: Consider obtaining professional certifications such as CFA, CPA, or FRM to demonstrate expertise and credibility.
Skills required for finance management
The following skills are essential for success in finance management:
- Analytical skills: Ability to analyse and interpret financial data, make informed decisions and solve complex financial problems.
- Financial acumen: Knowledge of financial markets, regulations and best practices, and the ability to apply this knowledge in economic decision-making.
- Budgeting and forecasting: Ability to create and manage budgets and make accurate financial projections.
- Communication skills: Clearly and effectively communicate financial information and recommendations to stakeholders.
- Problem-solving: Ability to identify and resolve financial challenges and find creative solutions.
- Attention to detail: Ability to accurately record and report financial information and to identify and prevent errors and fraud.
- Leadership: Ability to manage a team, motivate and mentor others, and make strategic financial decisions.
- Adaptability: Ability to adapt to change, stay up-to-date with changes in financial markets and regulations, and adjust financial plans accordingly.
A career in finance management with job profiles and salaries
A career in finance management can take many different paths, and job titles and salaries can vary widely depending on education, experience, and industry. Some typical job profiles in finance management are:
- Financial Analyst: analyses financial data and provides recommendations for financial decisions. Median salary: $85,660 per year.
- Financial Manager: responsible for the financial planning and management of a company. Median salary: $125,080 per year.
- Investment Banker: advises clients on financial transactions such as mergers and acquisitions and raises capital. Median salary: $100,000 to $200,000 per year.
- Risk Manager: identifies and manages financial risks in a company—median salary: $121,000 per year.
- Financial Advisor: helps individuals and businesses make informed financial decisions, such as investments and retirement planning. Median salary: $90,530 per year.
- Accountant: prepares and maintains financial records and reports and ensures compliance with financial regulations—median salary: $71,550 per year.
- Budget Analyst: analyses budgets and makes recommendations for financial planning and control. Median salary: $76,540 per year.
- Financial Planner: provides comprehensive financial planning services, including retirement and estate planning. Median salary: $89,160 per year.
Note: Salaries may vary depending on location, industry, and experience.