You might have a great idea for a product or service, as well as the means to bring it to life, but without a financial manager to oversee the funds and financing, you would be lost. It is vital to your company that the financial manager be realistic, trustworthy, insightful, and accurate to keep your business booming from the backend.
Determining a Balanced Ratio
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With startups, the role of the finance manager is to build a financial plan that offers a realistic snapshot of funds needed and a strategy for getting those funds. New businesses have to take into account startup costs and estimated sales in a way that won’t leave them wanting by the end of the period.
Businesses that are more established, however, depend more on their finance manager to balance the ratio between equity and debt. The battle between under-spending and overspending is continuous in business: too little, and the company is not able to grow as quickly as possible; too much, and the company pushes itself down the rabbit hole of debt. There are formulas to help determine the right balance between worth and liabilities—the finance manager must analyze the business and determine the healthiest balance to maintain and grow.
Allocation of Funds
Considering the size of the firm and its capacity for growth, a finance manager must look at assets and funds and consider the use. Choosing how to reinvest funds into the company is vital to healthy growth and one of the most important aspects of a finance manager’s role in the company. The status of assets (long term or short term) and the way business funds are raised for the company are important factors to consider when choosing proper allocation of funds. You can manage your company’s assets with software like Accruent.
You want available cash on hand to meet your obligations, but not an excessive amount. The tighter your finance manager is with determining real need from excess, the faster your company will thrive. Cash flow shortages lead to an unnecessary need for immediate outside funding, while excessive amounts of idle cash contribute to unnecessary purchases and cause you to hold your overhead debts longer.
Expenses and billing are often in different cycles. Your finance manager will need to manage accounts receivable and accounts payable to keep the cash-flow balanced and a good spending budget outlined. Accounts receivable determine what you expect from customers and what you have actually pulled in with billing. Accounts payable are the records of what you owe your suppliers. Check out an online accounting software for more information on managing your cash flow and tracking projects and billable hours.
Every business is focused on profit earning. Once funds are generated by the company, the finance manager determines the best use for reinvesting those funds back into the company. Profits can be boosted by a mix of price increases, consumer demand, industry competition, economic state, costs, and output. Once these positively alter the incoming cash-flow, it is up to the financial manager to consider the continuous depreciation of production machinery and other company assets in order to replace them on a need-driven basis.
Reading Current Money Markets
A financial manager must understand the risk of trading shares and debentures. Most investors want to see profits reinvested and not split among shareholders as dividends. If your company has not yet moved from private to public, your finance manager will be looking at costs and risk assessment to determine if a pricey move to go public is beneficial to the company. It is also the job of the finance manager to look at the global markets and consider what an international expansion would involve.
As you can see, a financial manager has to be more than just good with numbers. A financial manager has to be fully on board with your company goals and mission. In order to help you grow as quickly as possible, your financial manager will have to have insights into your consumer base, the competition, industry requirements, and business practices.