What is Finance Management? This question has many answers but one that need to be clarified first is what is finance management. Financial management can be defined as a discipline or field in an organization that is concerned with money, expenses, financing, credit and the ability of the organization to manage cash flows. It deals primarily with budgeting and financial information analysis. It is not a department that deals with goods or services.
One can go on and add the definition of finance to the mix, however, in the United States, finance has become synonymous with management. As such, it is important for individuals who want to enter the finance industry to first learn all about the history and basic principles that are at the foundation of the discipline. There are many books available that can provide this information.
The principles that underlie finance management are primarily accounting and investment. Accounting includes the recording of financial transactions including sales, purchases, income, and payments. Investment refers to the purchasing of financial assets to create capital. An important principle of investment theory is that a firm should use its funds to increase their net worth, or current equity value. As such, investors will always try to avoid the loss of interest income, or net worth.
Applying this concept to contemporary situations, one begins to understand that the primary objective of any investor is to create a higher value for their portfolios. Applying this principle to finance management, the first step would be to make sure that investment decisions are made according to sound financial strategies. Investment decisions made without sound principles are risky and will usually not pay off. As such, the first steps of becoming a successful financier would be to learn the basics of finance and develop solid investment strategies.
While the basic principles of finance management apply equally to all firms in any industry, finance management professionals will generally focus on specific types of investment. For example, an equity finance manager focuses on generating funds through stock sales. The investment strategy of the bond manager is geared towards generating funds by offering interest income. Other specialized types of investment include derivatives (derivatives include foreign exchange options, stock index futures, commodity futures, and bond index derivatives) and derivatives such as swap agreements.
Developing your own unique style will help you become a successful finance management professional. Some financial professionals may prefer to work with larger firms, while others will prefer to work with smaller companies. Many finance management professionals work within an agency, where they handle several clients a year. If you have experience managing short term finance funds, you may find it useful to work as a finance management associate for a large financial firm. However, if you have less experience, working as an independent financial consultant could be a good choice for you.
In most cases, finance managers have detailed instructions for all members of their staff to follow when making financial decisions. This is done through internal and external manuals, training programs, and ethical and regulatory policies. All managers must follow these instructions in order to maintain good performance standards. It is up to each member of staff to ensure that these guidelines are adhered to in order to avoid discipline.
You can expect to have responsibility for finding, evaluating, and implementing strategic plans. These plans are based on sound financial analysis, market data, and current company information. As a finance management professional, you will be expected to understand investment objectives, inflation, and financial markets. Your contribution to the overall success of your company will depend upon your ability to create and implement sound investment strategies.