Table of Contents
Key Takeaways
- Financial management isn’t a single role, although financial managers exist as a position. Instead, financial management covers a wide range of essential functions for keeping companies solvent.
- Accounting is a subsection of financial management practices.
- You can leverage financial management practices at various levels of your accounting career.
Accounting professionals occupy a critical role in ensuring a company meets with objectives and remains solvent. Through the practice of financial management, they can provide crystal clear insights into cash flow and future revenue.
And over time, the tasks categorized as financial management have continued to grow. In a recent survey from the Association of Finance Professionals, 83% of respondents noted that technology and data skills are just as important as finance skills today. The fact is that the successful financial management of today requires more than basic financial knowledge.
But before you can integrate new skills, or even identify which make the most sense for your career, it helps to map out what financial management is.
In this article, we’ll cover how accountants and AP professionals leverage financial management skills at every level of their career to make a positive impact on their organization and address finance department challenges.
First: Isn’t Accounting the Same as Financial Management?
It’s often helpful to look at accounting as a subcategory of financial management. All of the data accountants collect, organize, analyze and report on contribute to the management process. However, financial management goes beyond these tasks, and can include higher-level decision-making and setting financial policy, such as financial goals for a business.
The Basics: What Does Financial Management Mean?
Financial management is defined as ensuring a business sticks to its financial plan, remains solvent, and meets its financial goals. This practice is essential to an organization’s stability, and relates to every financial position, from CFO to entry level accounts payable professionals.
At a higher level, financial management may involve data analysis, cash management reports, and investment decisions. Day-to-day management can include tasks like reconciling payments or capturing early payment discounts from vendors.
Before we can get into specific strategies, let’s take a step back and look at the four divisions of financial management.
What Is the Main Goal of Financial Management?
The main goal of financial management is to reduce costs and maximize profits so as to accomplish an organization’s objectives.
What Are the 4 Types of Financial Management?
Four seems to be a special number for financial management. For example, there are generally four parts to financial management: Planning, controlling, organizing, and decision-making. Consider these steps to the basic financial planning and implementation cycle.
There are also four types of revenue related to financial planning: Working capital, investment, financing, and dividend management. These income types, even though financing can be considered a liability, are components to understanding an organization’s financials.
What Do You Do in Financial Management?
On a basic level, financial managers perform data analysis and provide guidance to maximizing profit and financial stability. However, financial management isn’t limited to a specific role. Specific tasks may include:
- Collecting and analyzing financial data
- Preparing financial statements, reports, and projections
- Develop budgets
- Supervising staff performing financial budgets and reports
- Providing recommendations to reduce costs and maximize earnings
- Execute financial plans
- Management cash flow and potential risks of financial loss
- Oversee credit and collections
- Vet vendors and ensure financial controls are in place to protect organizational funds
The Intermediate: 5 Challenges and Solutions for Financial Management
1. Transparency
One of the most significant challenges finance professionals face is a lack of transparency. Without clear visibility, the gates are open for duplication, costly errors, fraud, and mismanagement.
Solution: Digitzing and automating financial records can help–espsecially when it comes to online transactions and invoicing.
2. Compliance
Compliance is tightly linked to transparency, but the rapidly shifting regulations create additional headaches. Local, regional, national, and international payment regulations can add costs and confusion to financial management teams, even if the rules are meant to protect organizations from fraud.
Solution: Work with compliant solutions that take the burden off your shoulders. Ensure your risk management is up-to-date with compliance laws.
3. Clean Data
Dirty data may be the root of all evil when it comes to accounting. Incorrect data makes it impossible to see finances clearly, maintain compliance, or make informed decisions.
Solution: Use automation and verification tools to streamline clean data collection.
4. Accurate Budgeting
Determining an accurate budget is challenging for any organization. But proper financial management would dictate that having a budget will enable your team to better prepare for success and manage revenue leaks.
Solution: Leverage AP/AR software with accurate, real-time insights to draft more accurate budgets.
5. Legacy Systems
Another significant obstacle can be working with manual or outdated software—or heaven forbid, paper-based systems. These processes are labor-intensive, prone to human error, and are often difficult to scale.
Solution: Shift to modern accounting and ERP systems that incorporate integrations for a flexible, modern, and easily scalable system.
Expert Management: 3 Additional Considerations
Financial management is about more than juggling direct revenue and expense. The following three points extend into more advanced topics—such as debt, discounts, and mindset.
1. Managing Debt
Debt, specifically debt financing, is a part of every organization, and it can be used as a strategic liability. However, this requires a finance team that understands when and how to use debt to offset taxes and increase profits.
2. Leveraging discounts
There are an array of ways to reduce costs, including positioning accounting policy to take advantage of discounts. For example, paying vendors early can result in substantial cost reductions over time, allowing companies to build up their contingency or growth funds.
3. Maintaining a forward-thinking approach
Finally, using all of the techniques of financial management—from automating transactions to timely processes—enable the team to think about how the finance team should look 5 years down the road, or longer. The finance team is a key player in a company’s success, and a team that reflects on what will be needed to grow down the line will only increase its company currency.
Take Control of Your Expenses
Nuanced financial management skills enables accountants to be more than number-crunchers, but strategic partners–not only within their department, but at their organization. Analyzing clean data, crafting accurate budgets, using financing strategically, and having a forward-focused perspective all make identifying growth opportunities easier.
The right financial management software can help. Teampay provides an all-in-one spend management platform, from procurement to automated AP, to help finance departments and accountants effortlessly scale their financial management tasks.
Try Teampay today and discover how you can streamline your process.
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