Introducing Finance

The financial manager is responsible for budgeting, projecting cash flows, and determining how to invest and finance projects. Their role is complex, requiring an understanding of how the business functions as a whole and specialized financial knowledge. The head of financial operations is called the chief financial officer (CFO).

The company's structure varies, but a financial manager is responsible for the same general things across the board. The manager is responsible for managing the budget. This involves allocating money to different projects and segments so that the business can continue operating, but only the best projects get the necessary funding.

The manager is responsible for figuring out the business's financial projections. The development of a new product, for example, requires an investment of capital over time. The finance manager must know how much the product is expected to cost and how much revenue it is expected to earn so that they can invest the appropriate amount in it.

This is a lot tougher than it sounds because there is no accurate financial data for the future. The finance manager will use data analyses and educated guesses to approximate the value, but they can rarely be 100% sure of future cash flows.

Figuring out the value of an operation is one thing, but it is another thing to figure out if it's worth financing. There is a cost to investing money, either the opportunity cost of not investing it elsewhere, the cost of borrowing money, or the cost of selling equity. The finance manager uses a number of tools, such as setting the cost of capital (the cost of money over time, which will be explored in further depth later on) to determine the cost of financing.

At the same time, the financial manager must also ensure that the business has enough cash to pay upcoming financial obligations without hoarding assets that could otherwise be invested. This is a delicate dance between short-term and long-term responsibilities.

The CFO is the head of the financial department and is responsible for all of the same things as their subordinates. However, he is also the person who has to sign off on the fact that all of the company's financial statements are accurate. They are also responsible for financial planning and record-keeping, as well as financial reporting to higher management.

The financial manager is not just an expert at financial projections; they must also grasp the accounting systems in place and the business's strategy over the coming years.

Collaboration The finance manager must collaborate across business functions to determine how best to allocate and manage assets.