Financial management is definitely more than keeping accounting records. What is more it is an essential part of corporation management and cannot be seen as a separate task to be left to finance staff. Financial management involves planning, organising, controlling and monitoring financial resources in order to achieve organisational goals.
Nowadays project managers have to develop at least financial management basic skills to really understand the financial condition of the business. As financial analysis shows the reality of the situation in your project, financial management is one of the most critical practices in management.
Let’s review some financial management basic knowledge:
- Assets – are all items owned by the company, for instance fixed assets such as buildings, inventory, materials, work in progress, trademarks, patents, cash and accounts receivable.
- Long-term assets – are assets that will not turn into cash or be consumed within one year of the date shown in the heading of the balance sheet, for instance long-term investments, property, equipment like computers, monitors, servers, etc.
- Liabilities – are defined as the future sacrifices of economic benefits that the entity is obliged to make to other entities as a result of past transactions or other past events. Liabilities include accounts payable, bank loans, corporate taxes, and advance payments from customers for work that hasn’t been performed yet.
- Revenue – is the funds from the sale of services or products.
- Cost – is the money spent to provide the service or make the product and put it on the shelf. There are two kinds of cost which are:
- Direct cost – can be directly linked to the service or product.
- Indirect cost – might benefit many different products.
- Expense – is the money spent to take a service or a product off the market shelf.
- Gross markup – applied to the cost to get a final price.
- Gross Profit = Revenue – Cost of goods sold
- Net profit = Net sales – Cost of goods sold – operating expense – taxes – interest
- Gross Margin = Gross Profit / Revenue
Certainly as a project manager you should be good at financial management if you want to build up your equity and be able to use it to your advantage.
I hope that those information was helpful. Let me know if you liked it.