CHAPTER 12:Managing the Finance

Function
Managing the Finance Function
What Finance Function is ?

- It is an important management responsibility that deals with the

“procurement and administration of funds with the view of achieving
the objective business.”. If the engineer manager is running the firm as
a whole, he must be concerned with the determination of the amount of
funds required, when they are needed, how to procure them, effective
and efficient usage.
 - one of the three basic management function the other 2 was
production and marketing.
Managing the Finance Function
The Determination of Fund Requirements
 - funds for specific requirement/s
 1. to finance daily operations
 2. to finance the firm’s credit services
 3. to finance the purchase of inventory
 4. to finance the major assets
Managing the Finance Function
For Financing Daily operation
 - day to day operations of a given firm
 - for taking care of expenses as it comes
 Examples :

 Wages and salaries, rent, taxes, power light or some marketing

expenses like advertising, travel, entertainment, printings etc. or some
administrative expenses like auditing legal, services
 Managing the Finance Function

For Financing Firm’s Credit Services

 - it is unavoidable for customers upon extending credit
 - if a firm finds difficulty in convincing distributors to carry their products
 Managing the Finance Function
For Financing the Purchase of Inventory

 - to maintain adequate inventory or the raw materials, supplies and parts are
needed to be kept in storage.
 - must have sufficient funding and must be secured
Managing the Finance Function
For Financing the Purchase of Major Assets

 - used when you a certain company needs expansion or if they want to

make investment on capital assets like land, plant, equipments

 - must have long term sources

Managing the Finance Function
The Sources of Funds

 - if a firm will have to make use of its cash inflows came from various
sources :

 1. Cash sales
 2. Collection of Accounts Recievables
 3. Loans and Credits
 4. Sales Of assets
 5. Ownership Contributions
 6. Advances from customers
Managing the Finance Function
Short term funds
 - are those repayment schedules with less than 1 year.


Supplies of short term funds

 1. trade creditors
 2. commercial banks
 3. commercial paper houses
 4. finance companies
 5. factors and insurance companies
Managing the Finance Function
Long term sources of funds
 - it has to tap long sources funds (necessary)

 1. long term debts

 2. common stocks

 3. retained earnings
Managing the Finance Function
The best source of financing :
 As to Schall and Haley recommends, factors to be considered are :

 A. Flexibility
 B. Risk
 C. Income
 D. Control
 E. Timing
 F. collateral values, floatation costs, speed, exposure
Managing the Finance Function
Risk Management and Insurance
 - risk is a very important concept that everybody must be familiar with,
risk refers to the uncertain loss or injury

 Examples :

 Fire Bad Debts

 Theft disablity and death
 Flood damage claim from other parties
 Accidents
Managing the Finance Function
Types of Risks

 Pure- means there is no way of making gains

 Ex. Theft

 Speculative- there is a chance of loss or gains

 Ex. Investments in common stocks

 Managing the Finance Function

 Risk Management
 - is an organized strategy for protecting and conserving assets and people

 - for us to know what to do upon risk occurances

 - to have a choice on methods of dealing on it

Managing the Finance Function

Methods of Dealing with risk

 1. The risk may be avoided

 2. the risk may be retained

 3. the hazard may be reduced

 4. the losses may be reduced

 5. the risk may be shifted

Managing the Finance Function
 short term
o Long term
Determination
o
Of
o
Funds (process Flow)
Requirements

effective
Procurement
And efficient use
Of funds