Role of financial manager in a modern enterprise?

Answer 1

The finance manager handles finance. The role of finance manager is pivotal. He can change the

fortunes of the organisation with proper planning, monitoring and timely guidance. Equally, if the

manager is not competent, even a profitable organisation may dwindle or even sink. The finance

manger is, now, responsible in shaping the fortunes of the enterprise. The role of finance manager,

in a modern business, is pervasive in all the activities of business firm, including production and

marketing.

It has been rightly said, money begets money. Business needs money to make more money.

However, business can make money, when it is properly managed. The financial history is replete

with stories how even the profitable organisations were wound up, when the management of

finance had turned bad due to mismanagement of financial affairs.

It is misunderstood, in some corners, that the role of finance manager is important only in

private organisations. It is not so. His role is important, both in private and public sector. He has a

positive role to play in every type of organisation. Even in non-profit making organisations, his role

exists as long as there is involvement of funds.

Influences Fortunes of Firm: The history of failures of organisations is interesting. Many

firms have failed, not because of inefficiency of production, inability in marketing or nonavailability of funds but due to the absence of competent finance manager. In many public

sector undertakings, in particular, state government undertakings, importance is given to the

appointment of peons, more than adequately, but not to the appointment of competent professional

manager in finance, even after lapse of several years. That is the real secret of numerous lossmaking organisations, in public sector! Over the years, the picture has been changing, but only

after the real damage has already occurred in those public sector undertakings, due to the nonappointment of professional finance managers, at the time of formation of those undertakings.14 Financial Management

In several public sector undertakings, the presence of competent finance manager is often found

inconvenient. A finance manager can not play any significant role in the public sector, unless he is

allowed to play.

Exists Everywhere: The role of finance manager, in modern times, can be well said,

universal and pervasive. Hardly, we find any activity, which does not involve finance. Even

entertainment in a firm requires financial management due to financial implications. In modern

business, no decision is taken without the consultation of finance. Even in recruitment, the

presence of finance representative has been a normal feature manager. Only the level of finance

representative changes, dependant upon the status of position for which recruitment is held. At

times, people working in other departments feel that the finance manager has been interfering in

all matters, unconnected to him. It is due to inadequate understanding of the role and expectations

expected of him in modern business. The finance manager can, definitely, contribute to the

overall development of the organisation provided he is competent and allowed to perform his

functions, independently.

In his new role, the finance manager must find answers for the following three questions,

again in the words of Solomon:

• How large should an enterprise be, and how fast should it grow?

• How should the funds be raised?

• In what form, should the firm hold its assets?

To sum up, finance functions or decisions include the following important areas, where the

finance manager has to contribute:

• Investment decision or long term asset-mix decision

• Finance decision or capital-mix decision

• Liquidity decision or short-term asset mix decision

• Dividend decision or profit allocation decision

The main objective of all the above decisions is to increase the value of the shares, held by the

equity shareholders. The finance manager has to strive for shareholders' wealth maximisation.

While discharging the functions, the finance manager has to focus his attention on the following

aspects to maximise the shareholders' wealth:

1. Procuring the funds as and when necessary, at the lowest cost,

2. Investing the funds in those assets, which are more profitable, and

3. Distributing the dividends to the shareholders to meet their expectations and facilitate

expansion to achieve the long-term goals of organisation.