The role of a finance manager is to help decision-makers with their financial decisions so that their businesses continue to turn a profit and minimize costs. The finance manager plays a very significant role in the management of the firm. There are two main roles that the finance manager has to perform:
Raise Funds
Finance managers, manage the interface between the firm and the investors or providers of capital – either through the financial markets or financial institutions. Financial markets such as the equity and bond markets help firms to raise capital.
This can either be done by issuing equity shares to the public or by selling debt securities to the investors. The firm can also raise debt funds in the form of a loan from commercial banks and other financial institutions.
The finance manager helps the firm to understand and meet the expectations of investors.
Manage Funds
Finance managers also manage the funds that the firm has – both internally generated from the operations and the external funds raised from investors to create value for the shareholders of the firm.
The manager helps to invest the funds in the firm’s operations by overseeing the process of allocating these funds to different projects within the firm so as to ensure that these projects generate adequate value to meet the expectation of investors in the firm.
Other Role of Finance Managers
Apart from two main roles we discussed above, the role of finance manager also plays the role of advising the top management on what to do with the cash flows generated by the firm’s operations. Whether the firm should reinvest the funds in the business or return the funds to the investors. The decision to reinvest in the firm’s operations depends on the availability of good investment opportunities for the firm.
In the case of funds raised from investors in the form of debt, there is a mandated repayment that has to be done in the form of interest and principal depending on the nature of the debt instruments used.
In the case of equity investors, although there is no minimum dividend payment that is required, there may be expectations of investors for dividends which need to be managed and communicated to the investing community.
Thus, we see that the finance manager plays an important role in helping the firm to raise finances and then manage the process of investing these funds in real projects that create value for the firm and its shareholders.
In order for the finance manager to perform his job well, a good understanding of the financial markets and institutions, as well as the ability to evaluate investment projects, is important.