What is corporate financial management? Principles of effective corporate financial management

Finance is a key factor that determines the development of a business. To assess whether a business is strong or weak, finance accounts for over 50%. So, what is corporate financial management? What financial management principles must you understand? What are the objectives of financial management? Let’s find out the detailed information in the article below with 1office.vn.

1. What is corporate financial management?

1.1. Definition

Corporate financial management (Financial Management) is a concept in economics that refers to all plans and activities related to financial matters throughout the entire life cycle of a business, such as: Investment, employee salaries, bonuses, travel, raw material costs, etc.

Factors related to a company’s financial management include: investment capital, project participation funds, business capital, employee salaries, revenue from selling products and services, etc.

See more: What is financial risk? Solutions to prevent and handle risks

1.2. Levels of corporate financial management

In the course of operations, corporate finance is also divided into 3 different levels to appropriately allocate personnel and tools.

The 3 levels, from basic to advanced, are:

Rudimentary Level: This is the first and simplest level, focusing on managing invoices, tax reports, or basic revenue and expenditure sources. At this level, management can typically be done with Excel software.

Basic Level: This is the next level of corporate financial management. In addition to management, it requires someone to be responsible for reporting finances, revenues, expenditures, etc., to superiors on a regular basis (weekly, monthly, annually). Excel can still be used, but it also requires staff with qualifications and expertise.

Advanced Level: This is the highest level of corporate financial management. At this stage, it’s not just about reporting; the person in charge is also responsible for analyzing and evaluating to plan effective capital utilization strategies for the future.

Upon reaching this level, it is mandatory for the business to use specialized management tools to access data and manage all branches and systems.

2. Objectives of financial management activities

Financial management activities in a business are considered the backbone that helps maintain its existence and development. In terms of the objectives of corporate financial management, they can be divided into 2 main goals:

• Long-term financial management objectives: Developing orientations and solutions to increase capital, and allocating capital for operational strategies (market expansion strategy, product development strategy, company capital strategy).
• Short-term financial management objectives: Ensuring sufficient capital for the daily operations of the business, specifically ensuring the ability to spend, invest, and make payments, correctly exercising the rights and functions of financial management, and ensuring a stable level of expenditure according to the established financial plan.

3. 7 Main functions of corporate financial management

Financial management is an indispensable function for every business. Financial management is closely related to all departments in the company, such as: the marketing department, production department, sales department, human resources and administration department, etc.

To understand each function in corporate financial management in detail, 1Office will analyze them according to the following 7 functions:

1. Estimating spending needs

The corporate financial manager needs to create a projected plan related to the company’s revenue and expenditure sources. Estimates are made based on future development programs and policies. Through this, the profit that the business will earn can be determined.

For example: When there is a request to spend 300,000,000 for all employees to go on a trip, the corporate financial manager must assess the feasibility of this expense, whether it will affect the business’s operations, and also determine the benefits gained from the trip.

Once the expenditure for future projects has been determined, the capital composition needs to be decided. The capital composition is developed from two sources: the business owners and investment funds from external partners.

3. Determine capital structure and select capital sources

First, to ensure the financial safety of the business, the financial manager must determine a capital structure that is suitable for their business model. They need to determine the ratio of equity to debt to ensure the company’s operations.

For example: For manufacturing companies, equity must always be greater than liabilities, whereas for banks, the opposite is true.

Subsequently, to expand capital sources, the financial manager must also analyze and evaluate to come up with the most effective method of capital mobilization, such as:

• Issuing bonds and stocks
• Borrowing from banks or financial institutions
• Public deposits

4. Investment Selection

Faced with attractive investment opportunities, financial managers must analyze and evaluate them to make the most suitable investment decisions that bring maximum profit to the business. It is especially important to assess and control risks to make the investment safer.

5. Surplus Management

Surplus is understood as the difference in money from an investment. For example, if you invest 1 million USD and get back 2 million USD after one year, the surplus value is 1 million USD. 

Simply put, surplus management is about how to spend profits reasonably according to the current situation. There are typically two basic ways to handle a surplus:

• Expand investments, innovate, and diversify the company
• Distribute dividends and other associated benefits

For example, in a difficult economic situation, it is necessary to ensure the company’s operations and shareholder interests before considering expanding investments.

6. Cash Management

The corporate financial management department is responsible for making decisions related to cash expenditures. Typically, cash expenditures are small amounts used to purchase or pay for: raw materials, supplies that arise within the company, utility bills, funds for organizing internal company activities, etc.

7. Accurate and Clear Financial Control

It’s not just about planning for future cash inflows and outflows. The financial manager must also maintain clear control over the company’s finances.

• What are the total expenses? What are they for?
• What is the total revenue? Where does it come from?
• What is the profit margin between revenue and expenses?

4. Principles of Effective Corporate Financial Management

Whether it’s a large or small enterprise, to manage finances effectively, the manager must adhere to the following financial principles within the business:

• Principle 1: Implement all expenditures in a detailed, systematic, and scientific manner. Regularly check credit cards, bank accounts, etc. Keep detailed statistics of cash inflows and outflows daily.
• Principle 2: Any business that wants to survive must understand the principle that expenses must be less than revenue. This is a crucial principle that must always be met.
• Principle 3: Use money to make money. The value of money changes constantly. Therefore, businesses need to have a strategic direction for growing the money they generate.
• Principle 4: Diversify the business’s products and services. If one product or project unfortunately fails, it will not seriously affect the company’s development and survival.
• Principle 5: Always have a financial contingency plan for unforeseen issues. These are things you cannot control.

As you can see, financial management in business is a critical issue for every company today. Therefore, finding a financial management tool is an urgent solution to help businesses manage cash flow, revenue, and expenses effectively and accurately. So, what is the best software to help businesses manage finances transparently and quickly? Let’s find the answer in the article below.

See more: TOP 7 Best Corporate Financial Management Software

5. System of Tools Used in Financial Management

Corporate financial management tools will help organizations better control the movement of cash flow. Below are the important financial management tools (According to the Journal of Accounting & Auditing) that you need to understand:

1. Institutions, sets of regulations, and rules for corporate and financial management.

2. Long-term and short-term corporate financial plans and budget revenue and expenditure estimates.

3. Monetary tools, prices, economic norms, and financial tools related to the business.

4. Economic leverage

5. Financial analysis tools

6. Internal control system

7. Information system on the economic and financial situation

6. Corporate Financial Management Solution with 1Office

The 1Office corporate financial management solution is one of the smart and effective financial management solutions for Vietnamese businesses. With many outstanding features, the tool helps you manage cash flow, revenue, and expenses accurately, saving time and costs in work processing.

Key features of the 1Office financial management software:

• Create, edit funds: Declare the business’s funds and configure the cashier to approve payment and receipt vouchers for the fund;
• Create new receipt vouchers: This feature allows users to create receipt vouchers based on the receipt type;
• Edit, delete receipt vouchers: After a new receipt voucher is created, users can edit or delete it before it is approved by the cashier.
• Easily upload documents related to receipt and payment vouchers to the software;
• Smart alerts: A feature to filter receipt vouchers that meet the alert’s filter conditions;
• Create, edit, delete payment vouchers: This feature allows users to create new fund transfer vouchers, edit, or delete them before they are approved by the cashiers of both funds;
• Approve/Reject: An action for cashiers with the authority to approve/reject vouchers. When both cashiers approve, the account balances of the two funds will change accordingly.

The content of this article helps you understand what corporate financial management is and its principles. It also offers a management solution with the 1Office financial management software to help businesses thoroughly solve the challenges of effectively managing cash flow, revenue, and expenses. We hope this article provides you with valuable business knowledge to help your company grow strongly.

To register for a trial of the financial management software that helps optimize cash flow, revenue, and expense operations in your business, please leave your information. The team of experts at 1Office will contact you for a consultation today.

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