INTRODUCTION

When most people think of financial management, they often think of managing
their own bank accounts: paying the rent or mortgage, paying utility bills, buying groceries,
maybe even planning a monthly budget. But financial management for business is a much more
complex pursuit. It involves controlling and tracking all the money flowing in and out of the
business, as well as taking steps to make the company as profitable and financially secure as
possible.

To get a clearer picture, let’s break down some of the key goals and functions of financial
management.

What is Financial Management?

Financial management is about controlling the flow of money in and out of the organization.
Every business needs to sell products or services, pay expenses, balance the books, and file
taxes. Financial management encompasses all of this, along with more complex processes, such
as paying employees, buying supplies, and submitting reports to government agencies to show
they’re obeying applicable laws and regulations. The act of overseeing all these transactions for
a business is what we mean when we talk about a company’s financial management. In general,
the bigger the company, the more complicated financial management becomes.

Employees who specialize in financial management are responsible for all the money going into
and out of the company. Smaller companies will have at least one accountant or bookkeeper
who works with the bank to execute these transactions and track the flow of money. Large
companies will often have entire finance teams led by a chief financial officer (CFO), controller,
head of finance, or someone with a similar title.

The finance team’s primary job is to make sure the company stays solvent and never runs out of
cash—but it’s not their only job. They’re also responsible for handling loans and debts,
balancing the books, overseeing investments, raising venture capital, and managing public
offerings (i.e. selling company stock on the open market). Basically, the finance team protects a
company’s financial resources, monitors and controls all transactions, and takes steps to make
the company as profitable as possible.

Key Takeaways

Financial management is all about monitoring, controlling, protecting, and reporting on a

company’s financial resources.

Companies have accountants or finance teams responsible for managing their finances,
including all bank transactions, loans, debts, investments, and other sources of funding .Finance
teams are also responsible for ensuring the company follows all regulations, stays solvent, and
is as profitable as possible.
Understanding Financial Management

Financial management includes business processes that span every team and department in the
company. A finance team’s responsibilities include:

Invoicing and receivables: Money that customers pay or have promised to pay to the business.
Finance teams are responsible for sending out invoices and processing the payments as they
come in. Collections teams are responsible for following up on overdue accounts (this process is
sometimes outsourced to third parties).

Payables: Money that the company owes to its vendors and suppliers. Finance teams are
responsible for paying these bills and recording the payments.

Bank transactions and reconciliations Finance teams work closely with their banks to ensure
that every bank transaction is processed correctly. They must also make sure that the bank’s
statements match their own records, which are kept in the company’s general ledger and Sub
ledger The finance team must follow up on, and correct, any mismatches between bank
statements and ledgers—a process known as account reconciliation.

Closing the books : On a particular date, the company will tally transactions from a given period
so it can reconcile its accounts and report on its financial position. The close, as this process is
known, typically happens at the end of a month, quarter, or year.

Reporting: Companies must report regularly on their financial performance, whether it’s to the
CEO, a board of directors, investors, shareholders, or government regulators. The finance team
is responsible for ensuring that these reports are clear and accurate.

Scenario modeling, planning, and budgeting: Scenario modeling starts with making certain
assumptions about an upcoming period of time, such as, “Next quarter, we expect to bring in
$10 to 15 million in revenue.”

The finance team will run multiple “what-if” scenarios for the best and worst cases to estimate
how much money the company will have if those conditions come to pass. Based on these
models, the finance team will assess how best to respond and develop appropriate plans,
forecasts, and budgets. Often, the finance team will work with other departments—such as
sales, HR, project management, or procurement teams—to build models that include data from
sales forecasts, workforce expenses, and inventory costs. This is known as connected planning.

Payroll and expenses: Individual paychecks to employees are typically the responsibility of the
HR department. However, overall workforce costs roll up to the finance team so they can factor
it into their budgets and plans. Finance is also responsible for reimbursing employee expenses,
such as work-related travel and meals.

Cash management and forecasting: With money constantly flowing in and out of a business, it’s
important for finance teams to look ahead. They must ensure that the company has enough
cash to stay solvent for the next quarter, next year—even the next three to five years. In most
companies, cash forecasting is typically done once a month.
Tax strategies: Every company must file. Taxes ; and, like the rest of us, they want to take
advantage of as many deductions as possible to prevent overpayment. Some finance teams
have tax specialists on staff to manage this. Those that don’t will often outsource this task to an
accounting firm.

Risk and Compliance Every business has financial risks, from rising interest rates to global
pandemics. It’s the finance team’s job to control such risks and reduce the company’s exposure
as much as possible. They must also make sure the company follows the rules and regulations
laid out by governments, regulators, and other jurisdictions to stay in compliance and avoid
hefty fines.

WHY IS FINANCIAL MANAGEMENT IMPORTANT

Financial management matters because it keeps a company solvent. Its most basic goal is to
ensure that the business doesn’t go bankrupt. Financial management addresses the most
critical issues that a business can face, such as loss of revenue (as happened during the COVID-
19 pandemic), natural disasters, strikes, wars, and so on.

Beyond basic survival, good financial management—and financial management software—can

help a company grow and thrive. Finance teams have many tools they can use within the
business to help drive growth. In good market conditions, with a growing economy and low-
interest rates, finance teams can borrow money from banks , raise funds from venture
capitalists, or take the company public (i.e. sell shares on the stock market). The company can
invest these funds for growth by opening new locations, expanding into other territories,
upgrading equipment, and so on. When market conditions are less favorable—for example,
during a recession—financial management tactics might include cutting costs by laying off
workers or closing unprofitable locations.

Improving profitability is an important part of financial management. Finance teams often work
with sales and marketing teams to set prices for the company’s products or services. They must
strike a balance to set the right prices. If prices are too high, customers might run to cheaper
competitors; too low, the company might not bring in enough revenue to cover expenses. In
the same way, controlling costs is also one of the finance team’s key responsibilities, whether
it’s for employees, rent, electricity, raw materials, or shipping expenses.

Reporting is a key part of effective financial management. The CFO and other business leaders
want to know how well the company is performing so they can make the best decisions for the
health of the business. They want to know that the business is performing to plan, and that it’s
providing a good return to the company’s investors. Good financial management matters
because it helps a company to meet—or even exceed—these goals

Goals of Financial Management in Business

Finance teams have many goals when it comes to financial management. Their top goals
include:

1. Keeping the company solvent by avoiding bankruptcy and ensuring the business has enough
money to continue operating.

2. Maximizing profitability by setting the right price for existing products and services,
discontinuing unprofitable products and services, and evaluating the potential profit of new
products and services.

3. Minimizing costs by monitoring spending and looking for ways to reduce overhead.

4. Ensuring a good return on investment (ROI) for venture capitalists, stock shareholders, and
other investors.

5. Raising capital by attracting more investment via positive ROI.

6. Cash forecasting to make sure the organization has enough cash—not only to function but to
invest in growth.

7. Reducing risks and avoiding fines by ensuring the company complies with the appropriate
regulations. Increasingly, this includes environmental, social, and governance (ESG) planning
and reporting.

Financial Management Functions

In smaller companies, one person or a small team of people might perform all the financial
management functions for the business. Larger companies typically have teams that are
responsible for specific functions. These include:

1. Accounting
This includes tracking, recording, and matching all monetary transactions within the company.
The accounting team is often led by a controller or chief accounting officer and aided by
accounting software. They often use cloud ERP systems—in particular, financial systems—to
perform, record, and report on the company’s finances. Accounting is also responsible for
account reconciliation and closing the books (see above).

2. Project management

Projects are a chief source of both income and expenses, especially for professional services,
such as engineers, lawyers, and consultants. Finance teams are responsible for allocating
budget to a project and overseeing the revenue each project brings in.

3. Procurement

This is typically divided into two categories:

Direct procurement includes the parts and raw materials used to make a company’s products.
Direct procurement is typically overseen by supply chain and/or operations teams who manage
and work with suppliers through a procurement system. The parts, raw materials, and finished
products are tracked using an inventory system. Having these systems connected to each other
makes operations, control, and oversight of suppliers and inventory much easier.

Indirect procurement refers to supplies that don’t go into a company’s products and services
but are used for day-to-day operations. These might include items such as office furniture,
laptops, and stationery. Finance authorizes and tracks these purchases using a procurement
system.

4. Financial planning and analysis (FP&A)

In large companies, this is sometimes a separate team inside the finance department. FP&A
specialists are responsible for modeling potential scenarios and forecasting likely outcomes for
the best- and worst-case situations. They use these forecasts to develop financial plans and
budgets for the next quarter or year. FP&A professionals often work closely with other parts of
the business to develop forecasts and budgets, including sales plans, workforce plans, and
operational plans. This is known as connected planning.

5. Tax

Every company must file taxes, but it gets especially complicated for big companies that must
file in different countries. Such companies often[9:50 am, 18/03/2024] Aniket Singh: have
specialized tax teams who use tax-reporting software for country-by-country and other
reporting.

6. Treasury

The treasury department is responsible for tracking and managing capital assets, debts, loans,
and cash in the bank. Treasury advises the CFO on how much money is available for things such
as capital investments (for example, big equipment purchases) or mergers and acquisitions
(M&A). They’re also responsible for the company’s capital structure (see below).

7. Risk and compliance

This function manages controls for financial risks—everything from audits to natural disasters—
and reduces the company’s exposure as much as possible. They must also make sure the
company follows the rules and regulations laid out by governments, regulators, and other
jurisdictions to stay in compliance and avoid hefty fines
Types of Financial Management

In general, financial management is divided into the following types:

1. Working capital management

This focuses primarily on day-to-day operations, such as making sure there’s enough money to
pay employees or buy raw materials. Working capital encompasses things such as cash on hand,
inventory on hand, or other assets that can be quickly sold to raise money if critical issues arise.

2. Revenue cycle management

This accounts for the revenue a company earns over time by selling its goods and services.
Increasingly, as more companies move toward selling everything “as a service,” revenue must
be recognized in the monthly or quarterly period in which it’s earned, rather than all at once at
the time of sale. This spread out revenue cycle is recognized as monthly recurring revenue or
MRR.

3. Capital budgeting

This area of financial management is all about identifying what a company needs financially for
it to achieve both its short- and long-term goals. Financial managers use capital budgeting to
evaluate the profitability of investments and/or projects to see if they add value to the
business.

4. Capital structure

Capital structure is a combination of the debt and equity used to finance a company’s
operations, acquisitions, investments, and growth. A company’s capital structure is usually
conveyed in a debt-to-equity ratio.

Objectives of Financial Management

Building on those pillars, financial managers help their companies in a variety of ways, including
but not limited to:

Maximizing profits: Provide insights on, for example, rising costs of raw materials that might
trigger an increase in the cost of goods sold.

Tracking liquidity and cash flow: Ensure the company has enough money on hand to meet its
obligations.

Ensuring compliance: Keep up with state, federal and industry-specific regulations.

Developing financial scenarios: These are based on the business’ current state and forecasts
that assume a wide range of outcomes based on possible market conditions.
Manage relationships: Dealing effectively with investors and the boards of directors.

Ultimately, it’s about applying effective management principles to the company’s financial
structure.

Scope of Financial Management

Financial management encompasses four major areas:

Planning

The financial manager projects how much money the company will need in order to maintain
positive cash flow, allocate funds to grow or add new products or services and cope with
unexpected events, and shares that information with business colleagues.

Planning may be broken down into categories including capital expenses, T&E and workforce
and indirect and operational expenses.

Budgeting

The financial manager allocates the company’s available funds to meet costs, such as
mortgages or rents, salaries, raw materials, employee T&E and other obligations. Ideally there
will be some left to put aside for emergencies and to fund new business opportunities.

Companies generally have a master budget and may have separate sub documents covering,
for example, cash flow and operations; budgets may be static or flexible.

Company Profile
The legend began when Ortega established a dress making factory in 1963 under the name of
Inditex. The success of his foundation led him to the path of retail market for which he had a
vision unmatched. Ten years after having set up a factory Ortega with Rosalía Mera started a
small store called Zorba, which he had to rename as ZARA. Marking the year 1975 for a store
setup, the investment was merely nothing and yet another feather was pulled out of Spain’s hat
which has made a remarkable name all across the globe.

After setting up the forst store in A Coruña, Galicia, in Spain, ZARA slowly expanded its empire
in the rest of the country and later in Portugal in 1988 and the year after that- 1989 ZARA made
it to the United States of America.

This annual growth has not dropped since day one and every year Zara has been expanding in
countries and places across the globe. France in 1990. During the 1990s, Zara expanded to
Mexico (1992),Greece, Belgium and Sweden (1993). In the early 2000s, Zara opened its first
stores in Japan and Singapore (2002), Russia and Malaysia (2003),China, Morocco, Estonia,
Hungary and Romania (2004), the Philippines,Costa Rica and Indonesia (2005), South Korea
(2008), India (2010),and South Africa and Australia (2011).

THE BUSINESS ASPECT

Zara as of 2017 manages up to 20 clothing collections a year.

2. Zara is a part of the € 4 billion Inditex group and 100% owned company, based in Barcelona.
Over 80% of the group’s sales are contributed by Zara’s 600 stores. Women’s, men’s and
children’s wear, over 724 stores in 56 countries.

3. Zara as of 2017 manages up to 20 clothing collections a year.

4. Zara currently has 1,751 stores worldwide. They incur an annual revenue of over $9 Billion
dollars (2009).

5. Its parent company is owned 60% INDITEX by the Ortega family and Inditex has carried out in
2005 to 6.741 billion turnovers. Zara has about 2000 thousands branches around the world.
Zara is a distributor of apparels.

6. On the face of it, none of it really makes sense. For starters the company doesn’t advertise
and still manufactures most of its products in Europe. But when you look at the heart of
Ortega’s business you start to see what a true retail visionary he is. Right from the outset Zara’s
business model has been built with flexibility and speed at its heart. Instrumental to the
company’s success is the connection between the stores, the in-house designers, and its
factories. This has always been a key factor, coupled with the company’s deft logistical
management.

7 .It’s these vital ingredients that enable him to interpret trends and get them from the catwalk
to the high street within weeks. Before Zara came along it took five to six months. And once
we’d had a taste of what is now commonly referred to as ‘fast fashion’ we just couldn’t get
enough of it.

8. All of the clothing is processed through the distribution center in Spain. New items are
inspected, sorted, tagged, and loaded into trucks. In most cases, the clothing is delivered within
48 hours. Zara produces over 450 million items per year.

ADVANTAGES:

1.Every department is independent.

2.The internal problems do not concern other areas.

3.Every department has specific functions.

4.It indicates in objective form the hierarchies of the staff.

5.They provide clear lines of authority.

DISVANTAGES

1.The employees in the low part of a vertical structure one can feel less valued that those in the
highest positions of the chain.

2.The weak leadership in the top part can harm the efficiency of the whole organization.

3.There is no communication between(among) the departments.

4.The reaction of the departments can be slow in conformity with the position of the area.

5.The information can be late in coming to the areas of minor hierarchic value.

MARKETING

Zara´s marketing is compound by different strategies for each sector:

1.PROMOTION AND DISTRIBUTION

This company does not invert in the publicity, but they invert all the money in stores, ubication,
decoration and shop windows, that is, Zara wants to improve the imagine of the store.
They do not chase possible consumers with aggressive advertising. They just place where the
aim public will be standing them out, in order to, they enter and buy.

For it, they use several and big shop windows, so that it does not go unnoticed, with wide and
ample doors, promoting a more fluid entrance for the store and inviting us to enter.

Furthermore, the order, decoration and the cleaning are essential, in order to not get distracted
with the clothes.

Also, the majority of the stores are in the best ubication, in good street of each city or near of
other luxury shops which give prestige for Zara. However, these types of shops like Gucci,
Prada, wants to keep away from Zara.

PRODUCT

Zara instead to hiring with good designers from around the world, just copies them.

When the great designers present the fashion of the new season this company imitates them
with cheap materials, some modifications and bringing the clothes to light immediately.
Because nowadays, people don’t want to wait for the clothes to arrive, just see them and buy
them immediately. This concept is called ¨fast fashion¨ because the product leaves the factory
to the store without going through distributors and wholesalers.

This company is based on innovation, maintaining products of continuity and reducing costs to
lower the price.
PRICE

Zara gives us clothes at affordable prices for the majority of the public thanks to the sale she
manages to make on a large scale, that is to say, cheaper. In addition, Zara does not spend the
money on storage, because she manufactures at the same time as she sells clothes.

In each country, depending on the public and the currency, Zara puts a different price. In Spain,
for example, it is cheaper than in the United States.

TECHNOLOGY

Zara changes with the new technologies when it has launched the payment by phone in all their
stores in Spain.

In addition to radiofrequency chips, which allows better location of the of the clothes and the
distribution of the same. Improving the anti-theft measures.

HUMAN RESOURCE MANAGEMENT

-Ability to make decisions in a short time: In each store there is a person in charge who must
report on sales and all interactions with customers.

– Team of young designers and open mind: The people who have to make the inputs that go to
the stores are the designers. They have to adapt all the new clothes they receive. It consists of
continuous innovation and team building.
– Transmit a young, modern and successful image of the company: Employees feel they are
working in an innovative company. It gives rise to a particular profile that is very much
identified with the store.

– Promote teamwork: In all stores a cooperative system is established in which all employees
have responsibility.

– Continuous training: Employees are taught to convey a good image of the company. As Zara
does not advertise, attention must be paid to the needs of customers.

– High self-demand: This is one of the main requirements. This company is looking for
motivated and cooperative employees who can assume the established requirements.

– Distribution of employee shares: This is a way for employees to participate in the course of
business.

OPERATIONS

1.DESIGN PROCESS

The key piece is the store where the customer’s fashion wishes and the proposals of the chain
design teams converge. They are also the main image support of the brand.

First, the garment is designed by computer on which a prototype is made in a handcrafted way
and then subjected to examination by its own creative team that will decide whether to market
the pattern or not, thus avoiding time and material costs.

2.MANUFACTURING PROCESS

Zara´s production is based in the term ¨Just in Time¨, is a concept from Japanese philosophy
focusing on the elimination of waste in management or production system.
The company´s production gives an advantage in time and capacity, which seeks to increase
your quality and productivity, committing the least possible defects and increasing production
without increasing costs.

Zara is characterised by adapting the production process to the requests of the stores, avoiding
mass production and manufacturing in small batches. The just in time system allows you to
personalize your processes and take advantage of your innovations

3.DISTRIBUTION PROCESS

The key to distribution is the rapid flow of information from the stores, thanks to the fact that
the logistics centres act as a connection between the two. Thanks to just in time their stores
have a minimum stock, thus reducing storage costs and avoiding stock breakage, as goods are
sent every fortnight from the logistics centre.

In general, eight hundred people are in charge of preparing the orders, but in case of greater
demand they incorporate 400 workers.

For its part, distribution to the rest of Europe is done through fleet of trucks, using aircraft for
more distant areas.

SUSTAINBILITY AND SOCIAL RESPONSIBLE

In order to carry out this strategy, this company has a departmental organization which splits
up in four rules:

Fulfilment of the Code of Conduct

Security and Health in the Work

Projects of social Investment

Projects of Integration in the company

The company uses, in this sense, a triple system to manage the sustainability and responsibility
of its business model, following the traceability of its vertical and horizontal integration model
form. This is the origin to the final presentation to clients, what is known as the 3 pillars of the
responsible behaviour in the production chain:

1.The DNA of its offices: tied to its employees (legality, respect and diversity)

2.The DNA of its factories: tied to its suppliers and business partners (transparency,
legality and traceability)

3.The DNA of its stories: tied to its clients (quality, security and health)

Zara has achieved three great milestones in search for a management model and the most
sustainable business:

Design of the business: Creation of value for consumers, for society and especially for the
community.

Operation: Control of supplier’s responsible policies

Logistics: Sustainable mobility plans following the principle of Kyoto

Sales: Teaching for a more responsible way of consumption