Planning and Control

This article looks at Financial management within companies and corporations with a view to planning and control. First we will identify a few common terms used in financial management and then look at some associated formulae.

What is Financial Management?

Financial management is, essentially the managing of the companies finances. This being the movement of monies in and out of the companies accounts. A farther reaching meaning of financial management is the referral to the way these monies are handled and moved. This may mean via cheque (check), currency, assets or other means available to that particular company.

What is the Function of Financial Management?

The function of financial management is to oversee and control the companies finances. This means ensuring the finances are handled in manner that the company, at worst, makes as few losses as possible, at best, the greatest profits attainable.

What is the financial managers relationship with other senior managers?

His relationship with the other managers is that of overseer. Each manager has their own responsibilities, but, if the system functions correctly, nothing should get past the financial management without their analysis of whether the project is profitable. Only after this should the project be moved into the development phase.

What are operating budgets?

Quite simply, operating budgets are the amounts of money used in the development of a project. Everything must be accounted for within the operating budget, including things such as secretaries wages, photocopier usage, postage stamps and so on. On a broader scale, the factors can be easily identified via a grouping of project areas as follows

• Cost of sales
• Cost of production
• Cost of distribution
• cost of administration
• Cost of stock
• Debtors, creditors and other working capital

What is the Role of a financial manager?

If we assume a medium sized company, then the role of the financial manager is typically a bookkeeper and co-coordinator. It is the responsibility of the manager to use all available means at his disposal to decide whether or not a project is (financially) worth undertaking.

What are capital assets?

Capital assets are apparatus and equipment owned by the company that are of monetary worth. Company cars, power tools, computers, plant et cetera are all capital assets.

What is projected cash flow?

Projected cash flow can be seen to be the the ratio of net outgoing costs to net income. To help stabilise cash flow, a few methods are used, one being a bank loan, which however, must be repaid with interest. another is to seek a loan or investment from shareholders, whom expect dividends for their input. Yet another method is frequently adopted in the construction industry, called "draws". Draws are set percentage payments on completion of certain stages of works. E.G. When building a house, a draw of 10% may be paid on completion of the brickwork, a further percentage on completion of the roof and so on.

The projected profit and loss account differs slightly from a normal profit and loss account in as much as a projected account will detail historical operating costs and sales to provide a projected final figure. This is set against inflation, tax and other variables. The account itself appears in the same format as a profit and loss account. I.E. It details every conceivable cost, sale or transaction within the boundaries of the whole project.

What is the cumulative break even point?

The cumulative break even point is, ideally, the point at which all outgoing costs of a project are covered by the sales and transactions involved. This figure can be obtained from day one and can be set on a graph. The cumulative break even point occurs when outgoings plus income equals zero.