What Are the Three Types of Financial Management?

Solid financial management provides the foundation for three pillars of sound fiscal governance:

1. Strategizing

Identifying what needs to happen financially for the company to achieve its short- and long-term goals. Leaders need insights into current performance for scenario planning, for example.

• Decision-making

Helping business leaders decide the best way to execute on plans by providing up-to-date financial reports and data on relevant KPIs.

• Controlling

Ensuring each department is contributing to the vision and operating within budget and in alignment with strategy.

With effective financial management, all employees know where the company is headed, and they have visibility into progress.

What Are the Three Types of Financial Management?

The functions above can be grouped into three broader types of financial management:

1. Capital budgeting

Relates to identifying what needs to happen financially for the company to achieve its short- and long-term goals. Where should capital funds be expended to support growth?

• Capital structure

Determine how to pay for operations and/or growth. If interest rates are low, taking on debt might be the best answer. A company might also seek funding from a private equity firm, consider selling assets like real estate or, where applicable, selling equity.

• Working capital management

As discussed above, is making sure there’s enough cash on hand for day-to-day operations, like paying workers and purchasing raw materials for production.