What is financial management?

Financial management is an essential pillar in all businesses. If a company has a good financial manager, it will be easier for it to achieve its targets and objectives since they will be able to better manage the resources, making sure that there are enough to cover the costs, so that it cannot only continue operating, but also generate profits.

The definition of financial management refers to the activity through which the economic resources of a company or institution are administered strategically to guarantee good performance in all its areas and departments.

The finance department is in charge of managing expenses and income, determining how the operations will be financed, deciding where the profits obtained will be invested and preparing the financial model that will be applied in the company or institution, all with the aim of adding value.

If you are interested in the world of financial management, at Universidad Europea, you can deepen your knowledge, and gains the skills necessary to succeed in the role. We offer a number of programmes in the area, including the Degree in Economics and the Master in Financial Management

What does a finance manager do?

A finance manager is a key figure in a business or company, responsible for obtaining, using and supervising the funds that will keep the business running and generating profits. While the scope of the work may vary depending on the sector they work in and the size of the organisation, a finance manager typically carries out the following tasks:

• Prepare the financial forecast: One of the functions of the finance manager is to develop the financial model of the business based on its current and historical data. This forecast, which must realistically and transparently reflect the situation of the company, is used to project the financial statements and anticipate the consequences of a change of scenery.
• Plan and prepare budgets: Budgets are essential to maintain healthy accounts since they establish the relationship between the expenses and the income of the company's activity. Based on the economic indicators, the financial manager must estimate the costs of the business to balance them with the profits.
• Manage investment and financing: One of the most important tasks of the head of finance is to develop an investment and asset management policy, finding new opportunities for the company to invest the profits obtained. It is also up to them to analyse the different financing methods and choose the most convenient according to the structure, resources and business objectives, so that the business can maintain and expand its activities.
• Evaluate the feasibility of projects: The financial manager is also in charge of analysing the development projects of the company. They must consider the investment required, estimate the possible benefits and decide if they are economically viable in the short and long term.
• Monitor the use of company resources: The financial manager must also ensure that the company meets its financial obligations, such as payments to workers and suppliers. In addition, they must monitor the financial ratios of the business, analysing its solvency, liquidity and level of debt to avoid a possible bankruptcy.
• Manage the finance department: The head of finance assume the management of the finance department of the company. In most companies. There will be a team of people to manage, each with their specific role to ensure the smooth running of the company. In addition, finance managers often participate with other directors of managers in making company-wide decisions, especially those that affect the size and composition of the assets, the level and structure of the financing or the dividend policy. Given the leading role, it is not surprising that the salary of a financial manager in Spain is around 50,000 euros per year, according to Glassdoor. In the USA, the figure is around $97,000, while figures published by recruitment company Reed suggest the average salary of a finance manager in the UK is between £65-70,000.
• Solve financial problems: Companies operate in changing markets, so it is normal for unforeseen events to arise that require a restructuring of their plans. The financial manager must assess financial risks, be aware of the economic problems that the business is going through and propose viable solutions to minimise the impact.

The difference between financial management and tax management

Tax management, also known as fiscal management, focuses more on tax and accounting obligations a company must meet – such as registering invoices, declaring income and VAT, among others. Therefore, the main mission of a tax advisor is to settle the taxes of a business, optimising the tax burden to the maximum.

Financial management implies the strategy and control of all the economic resources of a company or business to achieve business objectives through financial planning. The position of financial advisor entails suggesting the best way to increase capital and optimise business income. This is a more creative position, as the tax advisor bases his decisions within a rigid legal framework and set of rules.