What is Financial Management?

7. Risk and compliance
This function manages controls for financial risks—everything from audits to natural disasters—and reduces the company’s exposure as much as possible. They must also make sure the company follows the rules and regulations laid out by governments, regulators, and other jurisdictions to stay in compliance and avoid hefty fines.

Types of Financial Management
In general, financial management is divided into the following types:
Working capital management
This focuses primarily on day-to-day operations, such as making sure there’s enough money to pay employees or buy raw materials. Working capital encompasses things such as cash on hand, inventory on hand, or other assets that can be quickly sold to raise money if critical issues arise.
Revenue cycle management
This accounts for the revenue a company earns over time by selling its goods and services. Increasingly, as more companies move toward selling everything “as a service,” revenue must be recognized in the monthly or quarterly period in which it’s earned, rather than all at once at the time of sale. This spread out revenue cycle is recognized as monthly recurring revenue or MRR.
Capital budgeting
This area of financial management is all about identifying what a company needs financially for it to achieve both its short- and long-term goals. Financial managers use capital budgeting to evaluate the profitability of investments and/or projects to see if they add value to the business.
Capital structure
Capital structure is a combination of the debt and equity used to finance a company’s operations, acquisitions, investments, and growth. A company’s capital structure is usually conveyed in a debt-to-equity ratio.

Functions of Financial Managers and Advisors
To achieve these objectives, the financial managers and advisors must perform certain functions. These include:

Fundraising – For any business to grow confidently and have a good market reputation, adequate amount of cash and liquidity is critical. Therefore, businesses raise funds by equity or debt financing. Financial managers take decisions on maintaining a healthy balance between debt and equity to ensure that the company’s financial health is not impacted.
Fund allocation – Smart fund allocation is as critical to a business’ financial health as fund-raising itself. The funds that a company has must be allocated in the best way possible after due diligence on: