Monday 28 October 2013

Role of financial management


Interdependence:
Different parts of the business depend and do roles for other divisions in a reoccurring cycle to keep the business going.

                         complete sales
Operations--------------------------->Finance
                 Provide funds when needed


                    Generate sales--> income
Marketing--------------------------------->Finance
                   Provide funds when needed


                            Manages workforce effectively/efficiently-->Sales-->Income
Human resources---------------------------------------------------------------->Finance
                                                      Provides funds when needed


Strategic role:
Tasks involved- Maintain and report financial information e.g balance sheet.
- Forecast the business's future finances
- Distribute funds to different parts of the business
- Source funds when needed

Day-to-day- Release funds when needed
- Follow all laws
- Manage transactions

Longer-term- Maintain low levels of debt (still allow growth)
- Leave all options open e.g if the business wants to issue shares

Financial management goals:
Short-term goals-

  • Liquidity- How easy assets are turned into cash (cash available to pay short-term debts). 
                       -Need to balance short-term obligations and growth opportunities
  • Solvency- How easy assets are turned into cash (cash available to pay long-term deb)
                        - Payments have to be sustainable.
Long-term goals-
  • Efficiency- Increasing sales revenue and/or decreasing expenses (recover receivables)
  • Profitability- Increasing sales revenue and/or decreasing costs and expenses.
  • Growth- Increasing the size of the business.
                     - Three main ways of making a business larger; direct expansion, merging, acquisition
                     - Growth has to be sustainable

Conflict- 
Mainly between:
  • Liquidity and profitability 
  • Solvency and profitability
  • Solvency and growth