Financial management is a term that you will hear across organisations and industries, especially those within higher education. Financial management can mean the difference between success or failure within these institutions as it directly impacts profitability. Many higher education institutions often battle with the complexity related to the management of their financial management systems and the number of overlapping processes and procedures. This complexity has led to the implementation of Enterprise Resource Planning (ERP) solutions to help simplify this.
What is Financial Management?
To understand the benefits of financial management in business, it is essential to define what financial management is. Financial management refers to the planning, organising, directing and controlling of financial activities. This includes the procurement and utilisation of funds and financial resources as well as the management and monitoring of these resources to achieve the institutions’ set out goals and objectives.
Financial Management in Education Systems
Within the context of a higher education institution, financial management includes managing income, cash flow, expenses and assets to maximise the institution’s profitability. This is often set out in the form of a financial plan that examines the institutions’ long-term and short-term goals and objectives, the organisation’s financial capacity, and risk mitigation. Financial planning aims to work out a framework that supports and enables the institution to meet its financial goals and objectives.
To simplify the complexities of managing all of these elements in silos, many institutions are implementing ERP systems to streamline the different financial planning and management processes. These systems often assist with enhancing the efficiency related to the process of invoicing and bill collection while eliminating accounting errors and ensuring compliance with regulations associated with tax and accounting. This provides the institution with a more effective way to budget, invoice, send out financial statements, manage cash, assets, and reach their financial goals.
The Financial Management Scope
Now that we know what financial management means in the context of education systems, we can examine the four areas that financial management covers, also known as the scope of financial management. This includes:
- Planning – refers to the projection of how much money the institution will need to remain profitable, the allocation of funds necessary for growth, capital expenses, the development of new products and services, operational expenses, events that could impact resources etc.
- Budgeting – refers to allocating available funds to meet costs related to rent, salaries, maintenance, equipment, emergencies, new business opportunities, and more. Budgeting is often broken up into static budgeting, which refers to costs that remain the same even if changes in planning occur, and flexible budgeting, which are costs that are adjusted based on different changes (market or organisation related).
- Managing and assessing risk – refers to the need to manage and identify elements that could impact the institution negatively in terms of finances. This includes market, credit, liquidity, and operational risks. The benefits of financial risk management are that you will be able to safeguard the business and protect the institution’s profitability.
Procedures – refer to the implementation of processes that the financial management team will use to process and distribute financial data, including invoices, payment, and reports. This includes elements related to security, accuracy and outlining who is responsible for making these financial decisions for the institution. This is often where organisations choose to implement an ERP system that not only provides visibility over financial management but streamlines and enhances the efficiency of these procedures and processes.
Benefits of Financial Management
Effective financial management not only benefits the higher education institution but also students. By implementing an efficient financial management plan that covers the scope of the areas mentioned above, the institution will benefit in the following ways:
- Gain more insight into its finances, resources and risks, which supports better decision-making in terms of achieving goals and objectives.
- Increases the visibility of all operations to identify problems and opportunities quickly.
- Helps to identify risks that may impact the institution to protect profitability and its resources.
- Assists in setting performance standards and meeting industry regulations.
- Effectively integrates financial budgeting, planning and management for a more streamlined approach.
- Enables you to track financial performance to meet the institution’s desired objectives.
- Assists in building trust with students and employees due to financial transparency.
Financial management is vital to the success and profitability of a higher education institution. For an institution to reap the full benefits of financial management, they need to ensure that they have defined the financial management scope and put together a financial planning framework. This will outline the organisation’s financial goals and objectives, how they plan on meeting these with regards to budgeting and planning, and ways to enhance the efficiency of financial management across the institution. When financial management is tackled in this way, the organisation will be able to improve decision making, increase visibility, mitigate risks, track financial performance and meet the necessary goals. For more information on financial management for higher education institutions, download the Innovation in Higher Education Whitepaper here.