What Is Finance Management?

Finance management is the strategic planning and managing of an individual or organisation’s finances to better align their financial status to their goals and objectives. Depending on the size of a company, your role within finance management seeks to optimise shareholder value, generate profit, mitigate risk, and safeguard the company's financial health in the short and long term. When working with individuals, finance management may entail planning for retirement, college savings, and other personal investments. 

Purpose of financial management 

The purpose of financial management is to guide businesses or individuals on financial decisions that affect financial stability both now and in the future. To provide good guidance, you analyse finances, investments, and many other forms of financial data to help clients make decisions that align with goals. 

Financial management can also offer clients increased financial stability and profitability when there’s a strategic plan for where, why, and how finances are allocated and used. How you help clients reach goals will depend on whether the client is a company or an individual.

Types of financial management

Financial management involves various aspects of a company's internal decisions about cash flow, profits, investments, and holding debt. These decisions will depend significantly on company size, industry, and financial goals. You help companies reach financial goals by guiding in financing, investment, and dividends. Consider the following notable types of financial management: 

Financial

Financial management professionals assist companies in major decisions that involve acquiring funds, managing debt, and assessing risk when borrowing money for purchases or building the company. Financing is also required when raising capital. Companies can make better, more strategic financing decisions to raise capital or obtain funds when they have information on cash flow, market trends, and other financial stats on a company's health. 

Investment 

Financial management professionals can help companies choose where, what, and how to invest. The financial professional’s job is to determine the number of assets (both fixed and long-term) a company will need to hold and where cash flow goes based on current working capital. This type of financial management is about assessing assets for risk and return ratios. Financial managers will consider a company’s profits, rate of return, cash flow, and other criteria to assist companies in making investment decisions. 

Dividend

Companies should have a dividend disbursement plan and policy in place, with guidance from a financial management professional who can create and implement that plan, suggest modifications when needed, and monitor payouts if and when they occur. Any time a financial decision is made, it’s essential to consider dividend payments since you may hold dividends to fund certain financial decisions within the company. 

It’s also important to have a flexible long-term plan that can grow with the company. Some more mature companies may pay dividends at certain times or once a year; the payout schedule depends on many factors. Other companies may retain or reinvest dividend payments back into the company if the company is in a growth phase.

What is the financial management cycle? 

The financial management cycle is a financial planning process critical to a company's growth and development. It includes: 

• Planning and budgeting 

• Resource allocation

• Operations and monitoring 

• Evaluation and reporting 

Effective financial management aligned with an organisation’s goals and objectives can increase efficiency and stability. These parts of the financial management cycle must work together to be the most effective. 

1. Planning and budgeting 

During this analytical phase in the financial management cycle, a company uses past and current financial data to set financial targets, modify objectives, and change the current budget. This phase will typically involve detailed planning as well as a big-picture one, meaning a company will look at day-to-day operations and long-term financial plans and try to link financial targets to these activities. 

The goal is to create a strategic financial plan for the company that aligns with objectives for the next three to five years. When setting specific budgets, a company may budget for one fiscal year at a time. A big reason for this is that a budget involves many moving parts that are subject to change due to market fluctuations.

2. Resource allocation 

Financial managers assign value to capital resources (anything a company uses to manufacture/produce goods/services) and advice allocating these resources based on criteria like projected company growth and financial goals. Resource allocation is important because it allows a company to have a long-term financial plan focused on its business objectives. Financial management professionals help companies by providing a framework for using capital resources and creating a portfolio that will generate the most revenue, given the company's financial status. 

3. Operations and monitoring 

This phase is critical to protect against fraudulent activity, errors, compliance issues, other variances in the allocation of funds, etc. Financial management professionals should run regular financial reviews of business operations and cash flow. These periodic reviews can help mitigate fraud and identify other issues. It is a preventative step that ensures the continuity of business operations by securing the validity and accuracy of a company's financial processes. 

4. Evaluation and reporting 

Financial management professionals should evaluate a company’s current financial management system and propose changes when necessary. Financial reports and financial data can be helpful when assessing the efficiency and success of an existing system. 

Some criteria a financial management professional may consider when evaluating a financial management system include security, compliance, company data needs, and the level of support needed. These criteria vary by the company’s size, industry, current financial situation, and long-term goals. 

Financial management professionals should be able to offer research-based suggestions that can help a company securely store and manage financial data in compliance with relevant laws and harness that data when needed. 

How to work in finance management 

To work in finance management, start with finance or economics in your 10+2 and complete a bachelor’s degree in business, economics, finance, or a related field. Some employers prefer postgraduate degrees, such as a Master of Business Administration (MBA). While licensure is not mandatory for careers in financial management, certification can help you learn new skills and highlight your credentials to potential employers. Employers often seek candidates with professional experience when hiring for financial management positions. Typical jobs you may pursue as an entry point to finance management include financial analyst, budget analyst, financial advisor, insurance claims adjustor, and more. 

Certifications

Certification is optional but suggested if you plan on a long-term career in finance management. Professional trade organisations typically offer certification. The type of certification you earn can be specialised to your job title or role. Common certifications that financial management professionals hold include: 

• Certified Management Account (CMA) certification is offered by the Institute of Management Accountants (IMA) and is ideal for anyone wanting to work in financial management. Requirements include at least two years of professional experience and a bachelor’s degree. 

• Chartered Financial Analyst (CFA) certification offered by the CFA institute focuses on investment analysis. This certification is for financial management professionals who want to work in senior-level positions like CFO. Educational (bachelor’s degree) and experiential requirements (4000 hours of professional work) are also necessary to enroll in the CFA programme. 

• Certified Treasury Professional (CTP) certification offered by the Indian Institute of Banking and Finance can benefit anyone who wants to work in corporate treasury. This certification focuses on risk management, corporate liquidity, and ethics. Enrollment in the CTP programme requires passing the 12th standard examination in any discipline or equivalent. 

Skills 

Careers in finance management require a mix of financial skills and business skills. Understanding business operations is essential, but proficiency in accounting, financial, and data analytics is equally important. Finance management merges management and finance. You may find success working in the field of finance management if you hold these skills: 

Workplace skills 

• Good communication 

• Problem-solving 

• Organisation

• Leadership

• Proficiency in public speaking and presentation

• Group management 

• Attention to detail 

• Analytical skills 

• Decision-making 

• Ethics 

Technical skills 

• Basic and advanced maths skills (algebra, statistics, basic computing) 

• Computer skills 

• Proficiency in financial management systems

• Understanding of statistical modelling software and spreadsheets

• Industry-specific knowledge 

• Proficiency in accounting principles and techniques 

• Understanding investment principles

Experience

Professional experience in finance or business management is key to advance into upper-level finance management positions. Expect to work at least some time in an entry to mid-level finance position before being eligible to work in finance management. Remember, finance management careers are managerial positions, so requirements like experience and education matter. It’s not just the quantity of experience but also the quality that matters. Try to find jobs in finance or accounting. It’s also helpful to find jobs to help you move into the specific industry you want to work in. 

Careers in finance management 

The scope of careers in the finance management field is vast. You'll have many career pathway choices, from entry-level positions in bookkeeping to management positions like a financial manager or management accountant. 

Your career will depend on factors like education, certifications, professional experience, industry, employer, and location. Salaries among finance management jobs will also differ based on these factors. Individuals in senior-level positions like CFO and vice president of financial planning and analysis are typically top-tier finance management earners. 

Financial manager 

Average annual salary (Glassdoor): ₹15,50,000 [1]

Financial managers oversee a financial department and may assist in creating strategic financial plans for an organisation. Their duties include preparing financial reports and statements, forecasting, setting budgets, analysing financial markets for trends and investment opportunities, and seeking ways to mitigate costs.

Financial advisor

Average annual salary (Glassdoor):₹5,52,107 [2]

Personal financial advisors assist individuals in planning for their future by helping them manage money and seek out investments based on individual situations. You meet with individuals to set financial goals with short and long-term plans to achieve those objectives. You may handle taxes, retirement, college savings, insurance, estate planning, and more if you have the expertise. You may work for an investment firm or on your own. 

Financial analyst

Average annual salary (Glassdoor): ₹6,00,000 [3]

Financial analysts may work within a large corporation or with individuals. Your job is to analyse your client’s financial situation and make financial suggestions based on goals and financial status. A financial suggestion may include finding investment opportunities. Your work aims to evaluate market trends and position a client in a secure financial standing based on the analysis of trends and related data.

Management accountant 

Average annual salary in India (Glassdoor): ₹11,12,207 [4]

Management accountants work for corporations or government agencies. You aim to provide an in-depth financial analysis of an organisation’s internal financial processes for strategic financial decision-making. Key decision-makers in an organisation use the information gathered by management accountants to aid in decision-making in the long and short term. 

Learn more about finance management on Coursera

From credit risk analyst to financial manager, finance management offers diverse career paths. You can prepare yourself for a career in finance management today by working on key skills you’ll need in this field. One way to take the next steps towards a finance management job is to enroll in a finance management course like Investment and Portfolio Management Specialisation or Investment Management Specialisation offered on Coursera. These courses are specially designed for professionals in finance management who want to build their resume, skills, and prospects for employment.