Financial management functions are an essential requirement to start any business. Regardless of the size of the business, objectives remain constant. To handle financial resources effectively, financial management is crucial. Financial management functions ensure that a business has access to the necessary revenue when needed. The functions of a financial manager include everything from getting money to using it effectively.
What is Financial Management?
Financial management is the process of planning, organizing, directing, and controlling an organization’s or company’s financial activities. Funding is handled efficiently to avoid disturbing normal business operations, maximize profit, and reach long-term goals. Budgeting, business investment, risk management, and the decision to allocate the organization’s finances are also included in financial management. Statistical sources indicate that financial management is essential for any business, small or large.


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9 Major Functions of Financial Management
Listing down the top 9 Basic functions of Financial Management can help you take a deeper look into the functions of a financial manager:
- Financial Planning and Forecasting
- Cash Management
- Determining the Capital Structure
- Funding Sources
- Forecasting Cash Flows
- Income Distribution
- Investing the Business Capital
- Financial Command
- Pricing & Price Control
1. Financial Planning and Forecasting
Financial management, refers to the procurement of funds and effectively managing and utilising the same in business, While the term “financial management Planning & forecasting” refers to the application of management principles to financial resources, in basic terms, it is
- Planning
- Organising
- Directing
- Controlling
2. Cash Management
The primary function of financial manager is to determine the revenue a company will need to reach its goals. When determining how much capital a company needs, the role of a finance manager includes estimating the size of the business, predicting profitability, and understanding company policies. The manager must also know how to measure financial risk management to secure the business from losses.
3. Determining the Capital Structure
When the capital requirement estimation is complete, one of the other major financial management functions is deciding on the capital composition. Both long-term and short-term debt equity research and analysis are involved in this function. It will mostly depend on the amount of equity capital that a company already has and the additional revenue required from other sources. The structure must be decided upon after assessing the necessary capital.
4. Funding Sources
Identifying the source of the capital is one of the next financial management functions. In order to raise capital in exchange for equity, the company may choose to contact investors, take bank loans, or hold an initial public offering (IPO). The advantages and restrictions of each funding source are taken into consideration while choosing and ranking them.
5. Forecasting Cash Flows
Estimating the upcoming expenses is part of the cash flow forecasting process. A cash flow prediction is an essential tool for your company because it will let you know whether you’ll have enough money to run or grow the enterprise. It will also let you know when the company is losing more money than it is making. The funding sources may be internal or external.
6. Income Distribution
The financial manager functions include making the judgement regarding net revenues. This is possible in two areas of an organization’s financial management functions. First, when a dividend is declared, the rate of dividends and, if applicable, bonuses are also determined.
7. Investing the Business Capital
Making decisions on how to distribute money to successful ventures is another one of the functions of financial management. For each investment, the financial manager must be aware of the financial management risk and projected return. Also, the investment strategies must be designed to maximise profit potential and minimise capital loss. Financial management functions are required to invest funds in viable businesses to ensure investment protection and consistent returns on investment.
8. Financial Command
The finance manager must develop tactics and ways to work on financial control of funds in addition to developing strategies to raise, allocate, and spend funds. A number of strategies can be used to accomplish this when it comes to financial management functions, including ratio analysis, financial forecasting, pricing, cost control, and others.
9. Pricing & Price Control
Many sizable businesses have thorough cost-accounting systems in place to keep track of expenditures related to financial management functions. Moreover, systems are made to emphasise statistically significant information on tasks and activities that will be displayed on a monitor. Financial management functions may offer insight into variations in spending at various manufacturing levels and the revenue margins required to run the firm successfully.
Key Roles of Finance Manager in Financial Management

Decisions And Control – Making financial decisions and maintaining control over the organization’s money are essential responsibilities of Finance Managers. They employ methods like ratio analysis, profit and loss analysis, financial forecasting, etc. Ratio analysis examines a company’s financial records to evaluate its liquidity, revenues, and profitability.
1. Utilising and Allocating Financial Resources
– Financial management makes certain that all of an organization’s financial resources are utilised, invested, and managed profitably, sustainably, and viably over the long term. Due to the intense competition that exists among businesses, finance directors must make sure that the money they have available is being used as efficiently as possible.
2. Financial Reporting
– Financial management keeps track of all pertinent financial reports for the company and uses this information as a repository for planning and predicting financial actions. For many businesses, reporting is a crucial task. It provides information about the company’s performance and financial position.
3. Management of Risk
– A company that practises sound financial management is better equipped to anticipate risks, implement mitigation strategies, and deal with emergencies and unforeseen dangers. There are hazards in any business, and risk management is one of the functions of a financial manager.
Conclusion
Financial management can secure growth in the next and sustain the company’s financial stability and profitability. The effective running of the business incorporates every function involved: financial planning and making investments on which to invest, risk management, and allocation of resources. An organized financial policy helps balance short-term demands and long-term objectives to maximize the shareholder’s value.
Structured learning programs offer a good source of knowledge and useful skills for those wishing to deepen their knowledge and acquire useful skills for dealing with financial matters. EdX partnered with Hero Vired on its Certificate Program in Financial Analysis, Valuation, & Risk Management, which includes industry-applicable courses for becoming a professional in the field. Through these courses, you will be able to discern the path to the different complicated areas of financial management in finance and become a successful professional in the said career.
FAQs
Cash management is one of the most important financial management functions. There must be decisions taken regarding what should be done with the money. Financial managers must choose whether they wish to spend on stock upkeep or make payments to creditors, invoices, and present liabilities.
The financial management functions involve organising, planning, controlling, and directing an organisation's financial activities. It includes applying different management principles to financial assets.
The four components of financial management functions are: planning, controlling, and directing.
The ultimate aim of any firm with financial management functions is to turn a profit. This justifies how crucial financial management is. Companies should adopt procedures that guarantee the highest possible profitability. The process of obtaining money to operate the company is included in financial management. These funds may be obtained for a while from a financial institution. Some companies even go public to raise money. Also, Check out the major
types of financial services offered in India.
A professional who oversees an organization's finances is known as a "financial manager." They produce precise data analyses and profit-maximizing suggestions to top management using financial management functions to ensure long-term success.
The role of financial management functions includes planning, organising, and governing activities that help organisations run their operations smoothly and generate healthy profits. Making decisions that take into consideration the organization's short- and long-term objectives is a crucial responsibility of financial management functions.
Updated on February 20, 2025