Globalization has caused major changes in the financial institutions. This is because globalization has resulted in new market demands due to the changing macroeconomic environment and consequently great impact on how businesses operate; calling for new strategies and prioritization that departments have to adapt to. According to Livia Ilie of Lucia Blaga University of Sibiu, Faculty of Economic Sciences, “Finance must support flexibility, scalability, and responsiveness to a multiplicity of global opportunities and challenges”. This means that the current managers have more responsibilities than usual. The current managers have to develop new mechanisms to curb all uncertainties posed by the complexity of the global economic dynamics. The managers have to come up with new departmental structures with mixed skills to help them navigate their financial functions in these turbulent times. It is with this regard that this paper seeks to unravel the concepts of financial management, the challenges faced by financial managers in a changing economic environment and their possible solutions.
Concepts of Financial Management
In order to understand the challenges faced by financial managers, it is important to first understand the key concepts of financial management. This article will examine the first four key concepts of financial management. These concepts include cash management, planning and forecasting, financial reporting, and capital structure (Hill, 2019).
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Cash Management
Cash management implies all the procedures and regulations put in place to ensure that money is properly allocated in various departments with the aim of meeting financial obligations in time. This entails managing accounts receivable and accounts payable in due time to avoid inconveniencing workers and other service deliverers during payments. The operation works to ensure that the cash deficit does not outnumber the owners forecast. This is achievable through insisting on strict terms such as payment upon delivery (Hill, 2019).
Planning and Forecasting
This entails making good plans for present and future operations of the organization. Besides, the financial manager ought to make accurate forecast of the company’s revenues, expenses, and resulting net profit (Hill, 2019). The manager also puts in place strategies that will result in a positive deviation on the prediction he or she makes concerning the company’s output, with the aim of ensuring that the business realizes sound profits that can keep the business in operation, now and the in future.
Financial Reporting
Financial reporting on the other hand aims at availing timely and accurate reports on the business operational requirements and output to the management team in order to allow proper and timely decision making on the organizational operations and effectiveness. The financial manager has the duty to give timely and accurate financial metrics which in turn help the business management team evaluate to see any negative deviation from their forecast and take the necessary actions to mitigate any problem that might have caused the decline, such as competition in the market and failure from some organizational departments.
Capital Structure
The last concept is the capital structure, which involves determination of the best capital allocations for the business venture. Small and growing businesses usually rely on investors who buy share holders in the business to support the business to maturity. The big and developed businesses on the other hand prefer borrowing money from banks in order to support their expansions (Hill, 2019). The financial manager therefore has the role of making the debt, equity or a combination of the two to give the business an insight on the cash payable and cash receivable.
Challenges Faced by Financial Managers
The entire running of the business management and operations requires lots of financial support. No business can survive without enough capital of making a significant profit output. Financial managers therefore make the integral part of the business operation. Financial managers play a key role of ensuring that, there is enough capital to run all business activities as well as realizing profits which are enough to pay all the workers and making investments for future use. Financial management is a hard task and required highly skilled personnel to carry the operation, especially in this global changing economic dynamics. The financial managers are therefore faced with numerous challenges as discussed during the 22nd International Economic Conference – IECS 2015 “Economic Prospects in the Context of Growing Global and Regional Interdependencies”, IECS 2015 (Ilie, 2015). According to Livia Ilie (2015), the ACCA (The Association of Chartered Certified Accountants) and IMA (Institute of Management Accounting) came up with a list of the challenges faced by financial managers in a changing economic environment. These are: regulatory changes, globalization, technological revolution, risks and uncertainties, finance function transformation, stakeholder management, varying strategic formulations and implementation process, changing reporting prospects, and talent capacity.
Regulatory Changes
Regulatory changes result in changing dynamics of the economic environment complexity and uncertainty; which are taking place rapidly in a manner that the financial managers find it hard to predict and adapt to the regulatory changes. This calls for additional work of the CFOs to put in more effort in order to cope up with the regulatory changes (Ilie, 2015). Thus, the CFOs are also prompted with the task to influence their businesses to embrace the regulatory changes, a step that causes lots of challenges to the financial managers.
Globalization
Most of the business activities are currently being operated at the global level setting. This implies that, the financial managers too, have to shift to global perception of operating their financial management roles. Operating a business at the global perception means embracing different cultural backgrounds and new regions. This step requires that the managers have to provide a valuable input of the finance function into the overall business while expanding in new markets, a step that is changing to the managers (Ilie, 2015).
Technological Revolution
The changing economic environment requires that the financial managers shift to utilize technology in regulating the financial business operations (Doel, Mattioll & Liu, 2019). However, the technological revolution has led to complicated software that requires a lot of knowledge to operate in order to revolutionize financial function data. The financial managers are scared of this changing technological advancement, which calls for them to go for more training on the new technology lest they lose relevance in their offices. This means that, the financial managers have to keep spending money and time in trainings in order to keep updated on the new technology which is useful in storing volumes of data in a small and convenient space for fast evaluation and running the business towards development (Doel, Mattioll & Liu, 2019).
Risks and Uncertainties
The fast changing economic environment involves a lot of risks and uncertainties to the business organizations, especially in terms of capital investments. This means that, what worked excellently today for the business may not work tomorrow. A capital investment therefore, is a matter of taking risks. There are so many uncertainties on whether the investment will result into the expected outcomes, and if it fails, what should be done to minimize the loss of capital. This poses a great challenge to the financial managers in terms of how to manage the risks and uncertainties of the business in order to keep it thriving now and in future. This is achievable through setting in measures to help in safeguarding the business’ assets from their value depression. The classical balance risk-return is critical in this fast changing environment (Ilie, 2015).
Finance Function Transformation
According to Livia Ilie (2015), finance transformation function occurs at two levels; the first occurs in relation to outsourcing and shared services taking into account the more complex environment and the need for diversified skills, while the second is related to the remaining finance function that should more concentrate on more effective analysis (Ilie, 2015). The first level comes with more risk to the organization and has to be carefully managed. The financial managers therefore go an extra mile to ensure they minimize as much as possible, the risks resulting from finance function transformation during the outsourcing and shared services (“The Changing Role of CFO”, 2012).
Stakeholder Management
Top financial managers are actively involved in vital decision making in the business. They work hand in hand with the CEO to ensure the business enterprise runs as expected. Therefore, such managers require equipping themselves with good communication skills to not only talk to the top managers, but also to the various clients. The CFOs have to keep in constant communication with bankers, investors, and financial experts for the purpose of ensuring that the business is in constant supply with enough capital for its operation. This has an implication that the role of CFOs is changing from just being a financial manager to being a member of the management body of the organization (“The Changing Role of CFO”, 2012). All these require that the managers put in a lot of effort in the business in such a way that they do not have time to make personal developments.
Varying Strategic Formulations and Implementation Process
The changing economic environment requires constant changes in the business operation strategies. Thus the financial managers have to keep on adapting the new strategies the business keeps in putting in place in order to meet the emerging market demands (Agrawal, 2013). Besides, the financial managers have to put in place strategic plans for both short-term and long-term plans. Financial managers therefore face a lot of difficulties in balancing both the short-term and long-term plans and especially with the changing economic environment.
Changing Reporting Prospects
The changing economic environment requires subsequent changes in reporting prospects; the financial managers have to provide a clear measure and reports of performance on social, environmental and financial metrics (Ilie, 2015).
Talent Capacity
The final challenge discussed is the issue of talent capacity demands for the CFOs. The changing economic environment requires that the financial managers possess a wide range talents and high capacity to fit in the global requires in business operations, such as the talent to cope up easily with different cultures, incorporation in new teams, and ability to change with technology (Agrawal, 2013). The managers are no longer required to remain in their areas of specialization, but to operate as personnel with much broader view and skills (Ilie, 2015).
Possible Solutions to the Challenges Faced By the Financial Managers
Despite the numerous challenges that the financial managers are facing, there are still some steps that the financial managers may take in order to mitigate the challenges. First is improving the agility and precision in their offices (Doel, Mattioll & Liu, 2019) . This will help the financial managers to be able to access accurate, real-time data, and insights that function to ease their wide range of duties. Secondly, the financial managers should aim at simplifying the cost structure of the institution they are serving. This helps them to curb the challenges posed by the risks and uncertainties of the business and hence save the financial managers from the pressure of the risks and uncertainties of the business. The financial managers should also strive to keep themselves updated on any small challenges in terms of technology. This helps them to avoid mounting lots of unknown technological revolution which later prompts the financial managers to undergo costly trainings. Finally, the financial managers should automate governance, risk, and compliance in their office; a step that will allow them to perform their duties much more easily and accurately (Doel, Mattioll & Liu, 2019).
Conclusion and Recommendation
Financial managers are faced with numerous challenges in this changing economic environment. This paper has examined deeply the various challenges the financial managers encounter in their work. The paper has also suggested some possible solutions to the challenges faced by the financial managers. Besides, the paper has also looked at the basic concepts of the financial management. It is recommendable that the financial managers try as much as possible to embrace the new technology in order to mitigate the challenges they face at work.
References
ACCA & IMA, Accountants for Business: The Changing Role of the CFO (2012). Downloaded on https://www.accaglobal.com/content/dam/acca/global/PDF-technical/finance-transformation/pol-afb-croc.pdf . Accessed March 30th, 2019.
Agrawal, A. (2013). Today’s CFO: Which Profile Best Suits Your Company? Downloaded on https://blogs.wsj.com/cfo/2013/01/04/todays-cfo-which-profile-best-suits-your-company/ . Accessed March 30, 2019.
Doel, J., Mattioll, K. & Liu, C. (2019). Finance Organization of the Future: How Cloud is Driving Finance Transformation. (Online). Retrieved from https://assets.kpmg/content/dam/kpmg/pdf/2016/02/kpmg-finance-cloud.pdf . Accessed March 30th, 2019.
Hill, B. (2019). Key Concepts of Financial Management. (Online). Retrieved from https://smallbusiness.chron.com/key-concepts-financial-management-60904.html . Accessed March 30th, 2019.
Ilie, L. (2015). Procedia Economics and Finance. (27: 726 – 730). Downloaded on file:///C:/Users/User/Desktop/challenges%20faced%20by%20managers.pdf . Accessed March 30 th , 2019.
