The twin aspects, procurement and effective utilization of funds are crucial tasks faced by a finance manager. The financial manager is required to look into the financial implications of any decision in the firm. Thus all decisions involve management of funds under the purview of the finance manager. A large number of decisions involve substantial or material changes in value of funds procured or employed. The finance manager, has to manage funds in such a way so as to make their optimum utilization and to ensure their procurement in a way that the risk, cost and control are properly balanced under a given situation. He may not, be concerned with the decisions, that do not affect the basic financial management and structure.
The nature of job of an accountant and finance manager is different, an accountant’s job is primarily to record the business transactions, prepare financial statements showing results of the organization for a given period and its financial condition at a given point of time. He is to record various happenings in monetary terms to ensure that assets, liabilities, incomes and expenses are properly grouped, classified and disclosed in the financial statements. Accountant is not concerned with management of funds that is a specialized task and in modern times a complex one. The finance manager or controller has a task entirely different from that of an accountant, he is to manage funds. Some of the important functions of Finance Manager are as follows :
- Estimating the requirements of funds : A business requires funds for long term purposes i.e. investment in fixed assets and so on. A careful estimate of such funds is required to be made. An assessment has to be made regarding requirements of working capital involving, estimation of amount of funds blocked in current assets and that likely to be generated for short periods through current liabilities. Forecasting the requirements of funds is done by use of techniques of budgetary control and long range planning. Estimates of requirements of funds can be made only if all the physical activities of the organization are forecasted. They can be translated into monetary terms.
- Decision regarding capital structure : Once the requirements of funds is estimated, a decision regarding various sources from where the funds would be raised is to be taken. A proper mix of the various sources is to be worked out, each source of funds involves different issues for consideration. The finance manager has to carefully look into the existing capital structure and see how the various proposals of raising funds will affect it. He is to maintain a proper balance between long and short term funds and to ensure that sufficient long-term funds are raised in order to finance fixed assets and other long-term investments and to provide for permanent needs of working capital. In the overall volume of long-term funds, he is to maintain a proper balance between own and loan funds and to see that the overall capitalization of the company is such, that the company is able to procure funds at minimum cost and is able to tolerate shocks of lean periods. All these decisions are known as ‘financing decisions‘.
- Investment decision : Funds procured from different sources have to be invested in various kinds of assets. Long term funds are used in a project for fixed and also current assets. The investment of funds in a project is to be made after careful assessment of various projects through capital budgeting. A part of long term funds is also to be kept for financing working capital requirements. Asset management policies are to be laid down regarding various items of current assets, inventory policy is to be determined by the production and finance manager, while keeping in mind the requirement of production and future price estimates of raw materials and availability of funds.
- Dividend decision : The finance manager is concerned with the decision to pay or declare dividend. He is to assist the top management in deciding as to what amount of dividend should be paid to the shareholders and what amount be retained by the company, it involves a large number of considerations. Economically speaking, the amount to be retained or be paid to the shareholders should depend on whether the company or shareholders can make a more profitable use of resources, also considerations like trend of earnings, the trend of share market prices, requirement of funds for future growth, cash flow situation, tax position of share holders, and so on to be kept in mind.
- Supply of funds to all parts of the organization or cash management : The finance manager has to ensure that all sections i.e. branches, factories, units or departments of the organization are supplied with adequate funds. Sections having excess funds contribute to the central pool for use in other sections that needs funds. An adequate supply of cash at all points of time is absolutely essential for the smooth flow of business operations. Even if one of the many branches is short of funds, the whole business may be in danger, thus, cash management and cash disbursement policies are important with a view to supplying adequate funds at all times and points in an organization. It should ensure that there is no excessive cash.
- Evaluating financial performance : Management control systems are usually based on financial analysis, e.g. ROI (return on investment) system of divisional control. A finance manager has to constantly review the financial performance of various units of the organization. Analysis of the financial performance helps the management for assessing how the funds are utilized in various divisions and what can be done to improve it.
- Financial negotiations : Finance manager’s major time is utilized in carrying out negotiations with financial institutions, banks and public depositors. He has to furnish a lot of information to these institutions and persons in order to ensure that raising of funds is within the statutes. Negotiations for outside financing often requires specialized skills.