Financial management is a critical part of every business, from a sole trader up to a plc. All organisations have to manage their finances well, as failing to do so can be catastrophic.
As such, financial management is a transferrable skill across every sector. Of course, businesses are all different, but the core principles of financial management are always the same, so an experienced financial manager can, theoretically, work in any company.
What is Financial Management?
Financial management is the art of managing all of a company’s capital. Although capital is cash, it’s not just the cash the company has available in the bank. Instead, it’s also all the cash the company has tied up in assets.
For example, a production machine represents the cash used to purchase it, which could be turned back into cash if the company sold it. However, the value of the machine falls over time and use, and it would sell for substantially less than it was bought. So, financial managers use tools to reduce its value over time to recognise this cash difference.
So, financial management revolves around managing:
- The capital a business uses to fund its current and future operations,
- The capital assets, i.e. anything that isn’t in cash form like inventory, buildings, machinery etc.
Drilling into this further, there are three main types of capital in a business:
The cash a business needs to pay all its fixed and variable costs for its day-to-day operations, such as wages, suppliers, utility providers, vehicle costs, professional services, and tax.
If a business doesn’t have enough working capital to meet all of its obligations, it is known as being “insolvent”, which could lead to its closure if not remedied quickly.
On the flip side, if a company has excess working capital, i.e. too much cash, it is missing the opportunity to invest that cash to create future profits.
As you can see, balancing working capital is a delicate art and one that skilled financial managers can do exceptionally well.
Equity capital is the cash a business can raise by selling shares in itself. Instead of borrowing money from a bank or financial institution, the directors of a company may choose to sell shares in the business to a private investor or on the publicly traded stock exchange.
The financial director of the business will play a critical role in these equity deals to ensure the company raises enough cash to fund its objectives, but without giving away too much of the business in the process.
Another way of raising money for a business is to borrow it from a bank or other lender. By borrowing the money, instead of selling equity, the share structure is maintained, which keeps control of the business in the hands of the board of directors.
What does the Finance Department do?
The finance department in every business works to achieve the aims previously discussed. While the financial director will make the top-level decisions, they don’t get too involved in the day-to-day operations. Usually, these are delegated to other personnel in the department.
Typically the other accounts department sections include:
Heads up and takes responsibility for the financial health of the business. The finance manager’s role usually revolves around preparing monthly management accounts, reporting, and ensuring the company’s working capital is balanced correctly.
Responsible for collecting cash on behalf of the business. The accounts receivable team will work closely with external companies ensuring that invoices are paid within the agreed terms. And any outstanding debts are chased. Where applicable legal action may be required to collect the cash.
Responsible for making sure that payments are made on time and in full. The accounts payable team plan all the outgoing payments (apart from payroll), considering the agreed payment terms and company cash flow.
Processing payroll payments to employees. The payroll department makes sure that all employee details are correctly entered into the payroll system, tax codes are applied, and pension scheme deductions are made.
Ensuring that customers are creditworthy and able to pay their bills. Depending on the company, this may be a simple check carried out by one of the other teams, or it could be a large department if the company deals with significant volumes of customers requiring credit, such as in a credit card business or mobile phone company.
In a large business, they could have personnel dedicated to each of these departments, or they could all be carried out by one person in a small company.
Typical salary bands in Financial Management
|Group Finance Director
||£76,000 - £490,000
||£62,000 - £230,000
|Group / Senior Financial Controller
||£56,000 - £125,000
||£38,000 - £75,000
||£47,000 - £77,000
|Business Partner - FP&A
||£53,000 - £71,000
|Finance Business Partner
||£31,000 - £70,000
||£37,000 - £72,000
|Senior / Group Accountant
||£36,000 - £66,000
||£26,000 - £67,000
||£22,000 - £51,000
||£22,000 - £58,000
||£22,000 - £38,000
||£34,000 - £64,000
||£22,000 - £37,000
|Accounts Receivable Manager
||£36,000 - £48,000
|Accounts Payable Manager
||£26,000 - £46,000
|Accounts Receivable Supervisor
||£24,000 - £34,000
|Accounts Payable Supervisor
||£22,000 - £34,000
|Accounts Receivable Clerk
||£17,000 - £28,000
|Accounts Payable Clerk
||£17,000 - £23,000
||£18,000 - £25,000
||£23,000 - £65,000
||£22,000 - £36,000
||£18,000 - £29,000
||£25,000 - £63,000
||£23,000 - £36,000
||£18,000 - £33,000