financial function: financial management in organisations

The financial function within a business exists to help managers to manage (Atrill,2003 p1). Additionally, financial function is a part of financial management. Moreover, financial Management is the activity concerned with the control and planning of financial resources. In business, the finance function involves the acquiring and utilization of funds necessary for efficient operations in an organization. Finance is core in business as it ensures smooth running of activities.


Major Sources of finance for organizations

Companies have different sources of funds  to smooth financial function. Generally, shareholders and debenture holders contribute long-term funds. On the other hand, medium-term business look to financial institutions while for short-term commercial banks. A company might raise new funds from the following sources:

The capital markets:

new share issues, for example, by companies acquiring a stock market listing for the first time

 Rights issues:
Loan stock
Retained earnings
Bank borrowing
Government sources
Business expansion scheme funds
Venture capital

Importance of Financial Planning

Financial planning outlines what is required now so as to achieve growth in the future. That is, this is the sales numbers we need to make to achieve this level of growth in 3years.The following are the advantages of financial planning in financial function:

For Optimum Fund Raising

financial planning helps to avoid under or overcapitalization in organizations. It helps to determine how much capital will be needed.

Determine Capital Structure

Organizations raises short, medium and long-term funds from various sources. Additionally, financial planning helps to identify the best capital structure to raise money for the various stages.

Helps in Financing the Right Projects

Because financial planning focuses on the company spending one can choose the best investments which guarantee the best return on investment. Financial manager is able to choose the best investment option comparing the various investments proposed.

Give Investor Confidence

Ensuring that your business does financial planning make it easier for a company to attract investors. the company can be able to confidently provide investors with required information in time.

Helps You Survive Turbulent Times

Financial planning helps to anticipate and determine financial requirements  of the business. This in return helps to manage shocks better as it ensures organization have cash reserves which it can use in bad Helps in Operational Activities

Succeeding or failing in the production or distribution process largely depends on financing decisions. If proper financial plans are not made, there will be no smooth operations in departments due to disruptions which translates to losses for the business.

 Types of Financial information collected by organizations

Financial management provide a picture of the performance, financial positions, and cash flows of a business financial function. These documents are used by the investment community, lenders, creditors, and management to evaluate an entity. There are four main types of financial statements which includes:

Income statements

This report reveals the financial function performance of an organization for the entire reporting period. It begins with sales and then subtracts out all expenses incurred during the period to arrive at a net profit or loss. An earnings per share figure may also be added if the financial statements are being issued by a publicly-held company.


Balance sheet

This report shows the financial position of a business as per the report date. Additionally, the information is aggregated into the general classifications of assets, liabilities, and equity. . This is a key document, and so is included in most issuances of the financial statements.

Statement of cash flows

This report shows the cash inflows and outflows done by an organization during the reporting period. Statement of cash flows should be prepared because they are difficult if left unattended for long.

Statement of changes in equity

This report records all changes in equity during the reporting period. These changes include the issuance or purchase of shares, dividends issued, and profits or losses.

When users issue financial statements, the preceding types may have footnote disclosures attached. Further, the additional notes clarify certain information presented in the financial statements, and may be quite extensive. Their exact contents are defined by the applicable accounting standards.

The company’s registered office must keep the accounting records. Furthermore, accounts records must also be open at all times to inspection by the officers of the company. Further, the records must be retained for at least 7 years from the date on which they were created.

Roles of a Finance Manager

Financial managers should manage all the financial functions. Besides, financial managers are expected to manage the funds in such a manner  to ensure their proper utilization. A financial manager is not only good for a private organization but also for a public and non-governmental organizations financial function. The following are the main financial functions of a Finance Manager:

Estimating business requirements of funds.

Deciding the capital structure.

Make investment decisions.

Make dividend pay-out decisions.

Cash management.

Evaluate financial performance with respect to return on investments.

Handle financial negotiations with banks and financial institutions.

Maximize wealth for company shareholders.

Manage company credit.

Tax management.

Manage foreign exchange.

Handle corporate accounting.

Overall the finance management team should make good investments, financing and asset management decisions for the organization.


Importance of ethics in financial management

A good manager can change the profits of a business with proper planning, monitoring, and timely guidance. Additionally, the opposite is true of an incompetent finance manager who can bankrupt a profitable firm. The manager can influence the firm’s fortunes by determining the overall development of an organization if allowed to do his role. Further, financial managers should be ethical in performing their financial function by:

  • Act with honesty and integrity.
  • Avoid conflicts of interest in professional relationships.
  • Provide people with accurate, objective, understandable information.
  • Comply with all rules and regulations governing your position and your company.
  • Act with good faith and independent judgment.
  • Never share confidential information or use it for personal gain.
  • Maintain an internal controls system to guard against unethical behavior.
  • Report anyone you see violating the code.

Being unethical can impact the overall performance of a firm due to misappropriation of funds and poor investment decisions. This damages company’s reputation and credibility in future.

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