Ever since the 1900s and even after the Great Depression in the 1930s, the primary role of a finance people was only a descriptive discipline on bookkeeping which means accurately recording all transactions related to the payment of suppliers, billing of customers, and handling of cash passing through the accounts department and issuing periodic financial statements. Until the late 1960s increased competition in industries forced financial managers to shift their focus towards evaluating investment opportunities and making decisions on the choice of assets and liabilities necessary to maximize the company’s value. The 1970s and 80s were a period of increased international competition, CEOs became concerned with operational efficiency to cope with the fast-growing market, this included the accounting functions which were streamlined and required to reach out to become a profit center for the whole organization. This transitional shift was gradual and finance manager’s roles are no longer stuck solely to the accounting functions, hence a new operational trend brought in a new breed of heavily educated controllers profession with MIS training and computer systems operational capabilities to bring forth efficiency and accuracy in management reports and analysis versus the old accounting systems. Since the mid-1980s, management accountants have transitioned from the traditional role of being a ‘number cruncher’ to an internal management consultant and decision-support specialist. Over the century, finance manager has risen to highly educated, professional and useful positions in the entire corporate structure.
Job Description of Financial Manager
Typical work activities stated in the Job Description of a Financial Manager are summarized below, with each requirement stating clearly a standard that has to be met and how the results of the good work would impact the organization:
- Manage and oversee the daily accounting functions to ensure relevant accounting activities are handled in compliance with the regulatory requirements and group accounting policies and maintain the highest standard;
- Coordinate and execute all financial-related activities in the group’s businesses to ensure the proper financial management and minimize the financial risks;
- Assist the top management to formulate strategic and long-term business plans;
- Monitor and supervise the month-end closing to ensure all management reports are tendered on time and with accuracy;
- Prepare and review monthly financial charts for all offices, debrief the financial data and results into business implication to relevant divisional heads;
- Compile various periodic analytical reports and hold discussion meetings with department heads timely to alert them of the updated business performance;
- Liaise with external auditors to ensure annual auditing is performed smoothly; participate in the group internal audits to ensure proper control procedures are in place;
- Monitor cash flows, oversee the total funding, predict future trends of cash and fund management to optimize the benefits of the company’s fund usage;
- Establish the annual budget program and financial models to sustain a smooth and comprehensive process;
- Handle taxation and legal matters;
- Review and implement efficient and effective internal control system, make recommendations on existing work procedures to improve efficiency. Set up accounting software to ensure it meets the corporate accounting requirement;
- Supervise the accounting staff locally and ensure the accounts department is well managed, liaise with overseas accounting heads to make sure appropriate guidance and directions are given. Assist in appropriate recruitment and provide coaching and training programs to staff members and conduct performance review for them;
- Work independently, when applicable, take the initiative to provide input on process improvements as it relates to reconciliations;
- Develop network and relationships with community and external contacts, such as customers, auditors, solicitors, bankers, brokers, creditors, insurance companies, and statutory organizations. Provide assistance and solutions to them whenever necessary;
- Analyze and keep updated on changes in legislation, financial regulations, competitor’s move, and market trends, research and report on factors influencing the organization’s business performance, and advise the management accordingly.
The Key Attributes and Competencies Required for Financial Manager
It is almost a prerequisite for a professional finance manager to be analytical, rational, cautious, and meticulous yet possessing a macro view of the whole accounting picture, ethical, risk-sensitive, and inquisitive to detect fraud in any areas in the organization. General personal attributes such as being hardworking, independent with initiative, responsible and accountable, well organized, efficient, timely, cost-effective, self-motivating, willing to work under pressure are expected. In addition, management skills to enhance the productivity of the accounting team, interpersonal skills in proactively communicating the financial facts and findings to the management, coordinating with other department personnel and decision-makers, and being a team player would be most appropriate and eligible to be a finance team leader.
Typical Accounting Roles of Financial Managers and The Critical Aspects
Financial management is in the arena of business management, dedicated to a careful selection of sources and prudent use of capital, with the aim of enabling a spending unit to move towards the direction of reaching its goals. The duties and responsibilities of financial managers vary with their specific functions and position titles in different organizations, this includes being a controller, treasurer, credit manager, cash manager, internal auditor, taxation manager, risk and insurance manager. Each of these functions has its critical aspects and prime objectives.
1. Function as a Controller
Controllers direct and compile the preparation of financial analysis reports concluding and forecasting the organization’s financial status. These analyses include income statements, balance sheets, continual review of revenue and expense trends, and analysis of future earnings. Controllers provide a periodic compilation of business cycle forecasting statistics and periodic calculation of a standard set of ratios for corporate financial performance and regulatory authorities. Controllers make financing decisions typically including should the company raise funds by borrowing short-term or long-term debt or by selling stock and equity, timing to pay dividends, and timing to sell the debt and equity. The long-range plan should include a listing of capital investments required and calculate the economic benefits to attain the revenue and profit objectives. Effective capital budgeting and funding allocation including cash management, budgeting, sourcing, and requirement can improve both the timing and quality of asset acquisitions, all of these decisions affect the investment profile of the company hence impact the shareholders’ value. It is common that controllers oversee the accounting, audit and budgeting, logistics departments and are responsible to communicate any financial variances and adverse trend results to management, along with recommendations for improvement. With regards to budgeting, a controller should determine various budgets on sales and revenue, revenue expenditure, profit and loss, capital expenditure, and cash budgeting. The prime purpose of budgetary control is to maintain expenses to be spent within the limits of income. As the budget is set, a controller must control costs and management overheads and allocate the costs accordingly.
2. Function as a Treasurer
Treasurers are responsible to oversee the organization’s cash, execute capital-raising strategies to support the expansion of the company. Treasurers look after the investment of funds and manage associated risks, supervise cash management and deal with merging and acquisition activities. To ensure tasks to be properly processed, they need to maintain relationships with bankers, stockholders, and other investors holding the company’s securities.
3. Function as a Credit Manager
Credit managers have to tailor-make credit agreements that concern the indebtedness limits, evaluate the credit applicants, ensure that the company maintains a fixed amount of working capital to cover the company’s operating cash needs. Primarily, they monitor the company’s issuance of credit, develop credit rating criteria and determine the ceilings, establish an accounting system for the sake of banking transactions. Furthermore, they are responsible to review the collection reports, the status of outstanding balances, then arrange to collect debts of past-due accounts or submit the delinquent accounts to solicitors or outsourced agencies for collection. This role ensures the company to have valid funds for the operation and arranges new sources of finance for a company’s debt facilities.
4. Function as a Cash Manager
Cash managers monitor and control the flow of cash, control check stock, signature plates, separate the responsibility for the cash receipts and bank reconciliation functions, process all accounts payable and receivables, and cash application transactions in accordance with rigidly defined procedures. Petty cash authorization and usage are to be supervised, recording incoming cash payments and verify the number of cash discounts taken. All above measures have to be scrutinized to ensure proper cash in-flow record and usage to meet the business and investment needs of the company and avoiding the risk of committing fraud if the operations are not monitored well. Least to mention, cash flow projections are required so that the management needs to determine if external loans are needed to meet the cash requirements or if surplus cash can be invested in other interest-bearing instruments.
Cost accounting and Inventory accounting is another major role of Cash Managers, they need to conduct job or process costing and verify the inventory valuation because inventories form a link between production and sale of products. Cash managers measure the benefits of inventory versus the cost, like account receivables, inventories hedging should be increased as long as the resulting savings exceed the total cost of holding the added inventory. Other than paperwork, cash managers have to coordinate periodic physical inventory counts, audits, and allocation methods, and provide periodic compilation and evaluation of the inventory costs.
5.Function as an Internal Auditor and Coordinator with External Auditors
The scheduling and management of periodic audits within the company lie upon the shoulder of the Internal Auditor. The preparation of audit reports and communicating the findings and recommendations to the management and board of directors is essential. Without saying, they are responsible to assist the annual external auditing. Auditing for fraud especially for small-scale transactional fraud is difficult, so by observing the environment, the managing person’s accountabilities and employee lifestyles may help in detecting unnoticeable fraudulent acts. American and European-based corporations have their own internal auditors who perform ad hoc auditing within the corporation worldwide at least once or twice a year.
6. Function as a Tax Manager
The reporting requirements of all governmental authorities have increased significantly and become more complex, so it becomes mandatory that companies comply with the changing federal and local tax laws and regulations. Tax managers handle the tax filing and reports for the organization so they must be familiar with tax laws and report timely to the Inland Revenue and tax authorities. Profound knowledge of and experience in international business and personal tax laws will help in this role although the company may hire external tax consultants or tax attorneys. Tax managers should review the annual and strategic plans to develop the tax jurisdiction and liabilities for each period, develop tax shelter policies, research the foreign tax consequences of the business plan, recommend actions concerning all tax adjustments, and at times, defend the company in respect to disputed tax matters. Some measures to be taken by tax managers, such as accelerating deductions which involve depreciation, making use of local and foreign countries’ tax credits, avoiding non-allowable expenses, increasing tax deferrals, and obtaining tax-exempt income to use the excess tax savings in other forms of investment. It is critical that the application of tax laws must be considered in many day-to-day operating decisions, setting up business operations overseas, utilize tax havens, consider personal tax situations when hiring expatriates which will help to avoid paying excess taxes by the company or individuals.
7. Function as a Risk and Insurance Manager and Liquidity Crisis Manager
Risk and insurance managers oversee the operations, projects, and production programs to minimize risks and losses that may arise from financial transactions and business operations. They need to manage the insurance budget, analyze and measure risks of the investments, direct operations of a brokerage firm which were commissioned in buying and selling securities, insurance negotiations, and finally select the insurance brokers and carriers. Establishing procedures for custody and control of assets, records, loan collateral, and securities, review reports of securities transactions and price lists is critical to ensure safekeeping and analyzing the market conditions. Risk managers work on the capital cost overruns, nationalization of facilities as some countries may nationalize certain industries with little or no compensation to the previous owners, ecological costs notably in the asbestos and tobacco industries, sales fluctuations, market growth rate, company’s market share, the investment required, cost of production, raw material scarcity, deterioration of margins for competing products, and technological advances. They would identify the key variables that have an impact on the business decision, after all, a long-range plan should include an in-depth assessment of the risks that may occur as a result of the business plan. If impending problems are predicted, the company can avoid going into involuntary liquidation.
Functions Specifically Required In Financial Institutions
Financial managers who serve in financial institutions, such as commercial and investment banks, finance associations, and credit unions, oversee a variety of functions, including loans, trusts, mortgages, futures, lines of credit, and investments. They must be highly familiar and operate in compliance with the State laws and investment regulatory rules and always keep abreast of the fast-growing array of financial services and products. Managers have to evaluate and examine the application, approve or reject, lines of credit and commercial, real estate, and personal loans, they also need to be aware of, and assess the international risk that arises due to foreign currency exchange rates and inflation rates, economic and political situations which may impact the local and foreign countries bonds requisition.
The financial manager, regardless of the functions above, should monitor the accruals, take a standard review of customer advances in the closing procedure if the company regularly deals with a large number of customer deposits. They should plan the current and long-term liabilities, such as accrual for bonuses, commissions, property and income taxes, royalties, unpaid wages and vacation pay, warranty claims, by period, in addition, they can analyze each way to reduce the company’s obligation such as using just-in-time inventory methods to reduce accounts payable and arrange for good payment terms for product or materials purchase and update the projected debt status to the year-end closing. A cautious procedure and alertness will assist the company’s growth with little drawback.
Organizational and Strategic Roles of a Financial Manager
As computerized systems are unanimously used in corporations, so finance managers can utilize more time in establishing strategies and implementing the short and long-term goals for their corporations.
1. As Part of Management with Management Skills
A Financial Manager’s function can be very distinct and like any other department manager, a finance manager needs to have general management skills such as A) Planning on what work is to be done and the complete schedule in the accounting department, especially in the timely processing of transactions and guiding the budgeting process; B) Organizing the financial tasks, office management, and software, hardware utilization; C) Directing the department work to ensure it operates in an orderly manner; D) Measuring the performance of all key aspects of the department to ensure that performance meets or even exceeds the standards set; E) Delegating work to accounting subordinates and F) Process controlling and constant reviewing if assignments are completed with accuracy and within the time frame; F) A finance manager must have a good knowledge of both company and industry operations in order to know how they impact the operations and new strategic move of the organization.
2. As a Strategic Business Partner
Any business decision, in particular the crucial strategic move, cannot dart ahead if without assessing the financial implications. This extends the domain of a finance manager to be involved in strategic business management. To compete successfully, a company must analyze its cost position relative to that of competitors, finance manager will play a strategic role here to provide competitive-cost analysis, if all competitors’ costs are researched, the company can project future price levels, anticipate competitors’ moves, prepare countermoves, and assess the potential of its strategies for success. The competitive-cost analysis begins with an analysis of strategic cost-driving factors which determine a company’s relative long-run position. The initial question is to determine which costs are relevant in a strategic sense, should the company ‘do the things right’ by cutting costs in the short run or doing the right things to position the organization for long-term cost advantages by exploiting opportunities for excess returns. By raising a number of questions while revealing the financial analysis, the manager should ask if the new strategy is appropriate given the company’s current financial position in the industry, do we have the financial resources to initiate the strategy, are financial resources being allocated correctly in order to achieve the strategic goal, should acquisitions be considered, should outsourcing be considered.
Finance manager can help in company’s growth by determining a wise use of the strategic funds (which is total funds available minus the baseline funds) for the purchase of new tangible assets such as facilities, equipment, and inventory, to increase working capital, and to fund direct expenses for research and development, marketing, advertising and promotions and even for mergers and acquisitions.
3. As Corporate Policies Writer and Evaluator
Being cautious and versatile in the financial principles and discipline, knowing thoughtful planning would affect the strategies of the company, the finance manager should initiate the details of all procedures, the authorization and limitations of people’s actions, regardless such act are aggressive or ignorant, into written policies and procedures. Such policies can include the operation of the accounting systems and statements issuance, the inventory purchase and control, capital and asset investments, human resources compensation plans and expenses, capital evaluation, and auditing control measures must be enacted into a procedural manual for all divisional managers to follow suit. Besides, authorization and procedures of credit and collection policies, dividend policies with regards to the dividend amount and payout timing must be thoroughly documented and regulated because the rightful process allows less human error or falsified ethics, avoid paying excess tax which would overall influence the level of a company’s accounts receivable. A good policy and practices impact the quality of the trade accounts, increase the company’s branding and competitive edge in the market.
4. Handle Mergers and Acquisitions and Consolidations
Financial managers have an essential function in mergers and consolidations, in global expansion, and related financing. The primary motive and purpose of merging two companies are to increase the value of the combined enterprise. Say if company A and company B merge to form a company C, and if C’s value exceeds that of A and B separately, then synergy exists and such merger should be beneficial to both A’s and B’s shareholders. The record-breaking example of AOL spending a significant amount of USD156 billion in acquiring Time Warner aimed to create a company that offers consumers a comprehensive package of media and information products. Financial managers possess extensive and special knowledge in the areas of risks reduction, valuing the targeted firm, compliance of merger regulations, international foreign exchange, tax considerations, analysis of the company’s current surplus funds, merger analysis of benefits of the complementary resources of income, and last of all provide a post-merger report. Without the merger analysis by financial managers, these mergers and acquisitions and consolidation in the market would not have been active worldwide, especially in the USA.
5. Maximize Shareholders Value
A competent finance manager should act in the interests of the company’s owners and shareholders, maximize the current wealth and profit of the organization by increasing the company’s market value. To do so, monitoring the equity of the organization in terms of debt and credit is important because investors expect a high return on the capital invested in terms of dividends, minimized liabilities, and a maximized stock price. The real assets of the organization need to produce sufficient cash to satisfy banker’s debt, so the capital budgeting responsibility of the finance manager plays an important role to calculate how much money the company can invest and into what kind of assets that could be predicted to earn the most and fastest and diffuse all concerning risks. This measure is to ensure enough flow of money from investors into the company is well utilized and then maximize the return back to them to satisfy the shareholders.