Introduction
Financial managers are tasked with developing long-term and short-term business strategies, preparing financial reports, and overseeing the company’s investments. They have to focus on ways to improve profitability and analyze market opportunities for expansion purposes. The duties of a financial manager can be narrowed down to monitoring accounts, reviewing financial reports, preparing financial forecasts, and activity reports. The responsibilities that are highly influenced by government policy and regulations include revenue growth objectives, profit margins, and bottom-line earnings return on investments and financial sustainability in hard financial times. The government influences finance functions through policies, laws, and regulations that have to be followed by companies.
How the government influences tasks of a financial manager
The government policies and investments have an impact on economic development and business environment. The following are the government’s action that affects the financial manager’s tasks.
- The structure of taxes
The government can structure taxes to target different aspects of the business, such as type and timing of transactions, organizational form, and company location. Therefore, tax decisions are influenced by tax purposes rather than management objectives to minimize the company’s tax liability. A complex tax system can add costs relating to compliance rules and tax procedures. A complex tax system can also lead to double taxation or over taxation. The financial manager’s task of maximizing revenues by minimizing costs is influenced by the government’s because they have to make decisions based on the tax system.
- Government investments
Investments done by the government is a significant influence on business’ capital investment and the planned developments in a given industry. The government can set up programs that boost research, technological development, infrastructure, and incentives to increase the company’s profitability. The financial manager must align the company’s financial decisions to take advantage of the government incentives to attain financial objectives.
- Funds allocation
Government policies and regulations create a stable business environment. The financial manager has to consider the market’s predictability before deciding to invest in a project. Highly volatile business environments present a high risk of losing investment capital, which discourages projects that expand the company and generate more income. The government can protect the investor’s rights through federal regulation through filling investments with the securities and exchange commission. The governor can also commit to creating a stable investment environment by creating favorable rules and also investments to develop the industry. The amount Capital channeled for investment by the financial manager are based on stability business environment
- Business policies
The financial manager has the responsibility of making financial decisions that help the company survive through tough economic periods. One of the measures that a company can result in cutting costs is by laying off employees. The government affects such decisions by formulating rules and procedures for laying off employees.
- Interest rates
The government regulates the level of interest states in the country through the central bank. The regulation of interest rates is made to control the amount of money in circulation in the economy. High-interest rates affect the amount of money that is available for investment by the private sector through loans. Individual consumption is also affected by interest rates, and this affects business growth directly. Financial managers have to consider the country’s interest rates before deciding to start a project or allocate finances.
- Taxation of dividends
The tax rate on dividends by the government affects the company’s profitability on its long-term investment and the number of shareholders willing to invest in the company. Taxation on dividend affects the company’s growth through investment and firm behavior. Corporate taxation reduces the available revenue from capital investments available for reinvestment or saving. A high level of corporate taxes also discourages domestic and international investments, affecting the financial manager’s decision to allocate funds for capital investments.
- Country competitiveness
The government influences that level of business competitiveness in the country through policies, rules, and regulations that affect the business and economic environment. Political stability in a country influences whether foreign investors are willing to invest in the local companies. Local investors also consider the risk involved in capital investment as determined by the policies a government sets to regulate and stabilize the financial market. Financial managers have to consider setting up international branches in countries with a favorable business and economic environment.
How the government actions affect the attainment of financial objectives
Favorable actions from the government increase the chances of a financial manager attaining the objective of increasing the firm’s value through investments. The government plays a significant role in the stabilization of the business environment, which encourages investments. The financial manager has to make long-term investment plans using forecasts, and this can not be achieved in an uncertain and volatile business environment. The probability of success in return on investments has to be higher than the probability of incurring losses for capital investments to be justified. The financial manager has to make financial decisions and plans based on government policies and the attainment of financial objectives and the functions of the finance department.