iBusiness, 2013, 5, 200-204
http://dx.doi.org/10.4236/ib.2013.53B040 Published Online September 2013 (http://www.scirp.org/journal/ib)
To Update Ideas, to Explore New Model of Financial
Pengfei Zhao
School of accounting, Zhejiang Gongshang University, Hangzhou, China.
Email: zpfyy123@sina.com
Received 2013
With the reform and opening up of china, and the globalization of economy, Chinese enterprises are facing more and
more complex financial environment, especially since 2008 financial crisis, the government's macro-control, the relative
appreciation of RMB, rising labor costs and other non-financial constraints factors, have greatly changed the financial
management content, objectives, theory, methods, and ways of working etc, enterprises financial management are suf-
fering from a huge challenge. This paper analyzes the main problems of Chinese enterprises in financial management,
and gives some suggestions to work out these problems.
Keywords: Financial Environment; Financial Ideas; Change; Explore
1. Introduction
In face of the turmoil in financial markets, the continua-
tion of crisis, the increasing difficulty to grasp the policy,
the increasingly fierce market competition and the rela-
tive appreciation of the RNB, enterprises, especially
SMES, are having a difficult operation condition. Diffi-
culties in financing, fund ing con straints and even fund ing
strand breaks are some of the biggest challenges for
SMES, and in Zhejiang province , the problem is more
serious, many private enterprises are involved in the
whirlpool of usury difficult to extricate, some owners had
to leave enterprise to escape liabilities, even to suicide,
and more to survive hard. Looking from financial man-
agement, many drawbacks exist in the traditional finan-
cial management system, including operation models of
fund and supervision means etc, and lead to weak finan-
cial management functions, now, financial ideas, man-
agement models, as well as management tools all needed
to be improved[1]. How to accommodate the compli-
cated situation, to get rid of the shackles of traditional
philosophy, and explore new financial management
model to comprehensively improve the financial fund
management level will be related to an enterprise's sur-
vival and development. This paper analyzes the current
situation in the corporate finance management, and
points out the main problems in financial management,
finally, the paper gives some suggestions to improve fi-
nancial management.
2. Some Factors of Affecting Financial
Management at Present
With the deepening of china’s reform and openness, the
business environment has improved in the last few dec-
ades, but still facing serious challenges. In particular,
since the 2008 financial crisis, the turmoil in financial
markets, the world economic depression, the relative
appreciation of RMB, and the National macro-control
policy, have made many enterprise fall into an unprece-
dented predicament. And the most concentrated difficu lty
is financing. Specifically, four aspects affecting enter-
prise financial management is shown as follow:
2.1. On Environmental in Financial Management
The environment will bring an important impact on fi-
nancial management, and always restrict financial activ-
ity[2]. Nowadays, the financial management environment
is quite complex, both positive and negative, the follow-
ing is some example, but not only:
1) The turmoil in financial markets, to grasp the mac-
roeconomic policy hard, and to finance difficultly. Some
companies were forced to seek the support of the civil
usury with great venture, which can not get the normal
bank loans, and fall into the position out of risk control;
2) Increasing risk and Financing costs. When domestic
monetary was tightened, capital became a scarce resource,
the capital cost will rise up significantly, and business
risk and investment risk will also increase.
Copyright © 2013 SciRes. IB
To Update Ideas, to Explore New Model of Financial Managemen 201
3) Business environment is getting worse. The obsta-
cles faced by enterprise is not only the above-mentioned
financial constraints, there are some non-financial con-
straints, such as power shortages, government regulation,
high tax burden, the underground economy competition
and corruption. In addition, recruitment is increasingly
difficult, the rising labor costs and the relative apprecia-
tion of RMB make enterprises profit margins more nar-
row, and even fall into unprecedented difficulties;
4) On the contrary, IT and knowledge economy creat-
ing opportunities for enterprise development. IT applica-
tions can enhance enterprise management level and in-
crease market opportunities, and knowledge-based
economy is conducive to enterprises to reduce the tech-
nology gap with other enterprises, and even to occupy up
the market opportunity first.
2.2. On Content in Financial Management
1) On investment decision-making. Reform and open-
ing up br ing both opportun ities and challenges. Since the
2008 financial crisis, the volatility in international finan-
cial markets is frequently severe, and it is becoming
more and more difficult to know market. Financial risk
exists in everywhere, including foreign exchange risk,
interest rate risk, inflation risk and debt default risk etc,
even if the sovereign debt, no exception; In addition, the
impact originating from political risk an d changes risk in
legal and policy in the international environment can not
be ignored also. Risk and return is always co-existed, and
the various risks are always interlaced. So, When china's
enterprises go abroad to get more opportunities, we
should pay attention to the risks as far as po ssible[3].
2) On financing decision-making. Overall, the financ-
ing channels are getting increasingly rich, but different
channels always have different risks. So, companies
should finance reasonably and operate the funds. To
high-tech industries and information industry, as the rep-
resentative of the knowledge-based enterprises, the GEM
market, venture capital funds will become the most im-
portant fund sources. Financing difficulties may be a
long-term problem for SMEs, but in any case, financing
risk must be cared for.
3) On daily operation of funds. As the world econ-
omy’s uncertainty increasing, companies will face more
intense competition in the domestic and international
market. The enterprise's day-to-day production and busi-
ness activities are directly affected by working capital
turnover. Corporate finance department should co-ordi-
nate the budget widely, and attached great importance to
the day-to-day operations of funds to adapt to domestic
and international competition .
2.3. On Financial Objectives, Theories and
1) Low-carbon and emission reduction to protect en-
vironment has become a global consensus, an d will bring
a profound impact on economic development. As a pre-
condition for en terprises to seek to maximiz e shareholder
wealth, the financial management objectives should con-
sidered how to fulfill the protection of the environment,
to ensure the quality of products an d services, and how to
support public welfare undertakings. Therefore, enter-
prises should attach g reat importance to its financial rela-
tionships with, including the shareholders, creditors,
suppliers, government, employees and customers etc,
based on sincerity. Enterprises should finance timely,
adequate, moderately and use these funds effectively.
2) Globalization will make financial management theo-
rieso more open and more technical. Corporate financing
management would be taken into account not only to
improve the capital structure, but also to improve the
internal structure of equity capital and debt capital. With
the rise of knowledge economy, intangible and human
capital investment will play an increasingly important
role in Enterprise Investment Management.
3) A large number of special financial management
business and financial approach are originated from the
rise of Cross-border mergers and acquisitions etc. These
special services, including mergers and acquisitions fi-
nancial management, the enterprise group financial
management and multinational financial management,
bring a constantly challenge to the theorists and practi-
tioners, which need them make an unremitting hard ex-
2.4. On Financial Management Way and
1) IT has greatly affected corporate financial manage-
ment. IT makes financial officers to get rid of the tedious
day-to-day work towards a more proactive way of work-
ing, such as forecasting, analysis of decision-making and
exception management. In an open economic environ-
ment, capital movement will gradually separate from
material movement, and financial management will take
the initiative to dominate the reproduction process, and
guide enterprises to provide products and services to
meet the needs of market. Enterprises should schedule
funds to support all type s of inv estment at any time based
on market so as to maximize the assets income and in-
crease the value of the enterprise.
2) Financial management and accounting are interre-
lated but with different functions. When enterprises de-
veloped to certain stage, Finance and Accounting De-
partment should be set up separately, and further, the
Copyright © 2013 SciRes. IB
To Update Ideas, to Explore New Model of Financial Managemen
Finance Department is divided into fund-raising, invest-
ment, financial settlement and other departments to
process various types of financial information timely and
accurately. Financial management would be run through
the entire process of business activities independently
instead of the accounting subsidiary.
3. The Main Problems in the Financial
Management in the Current
China’s enterprises has constantly improved financial
management with the growth in the reform and opening
up, but need to be cool-headed. There are still many
problems in the day-to-day finan cial operations: the "o ld"
financial concept, the virtual financial budget manage-
ment, the loose fund settlement, the weak supervision
system, the low-level management way and means, and
low efficiency of fund use, so it is difficult to ad apt to th e
modern financial environment for enterprises.
3.1. About the “Old” Financial Concept
The special history and background of China’s enter-
prises determine that the operation mode and enterprise
philosophy is subject to certain constraints, the corre-
sponding financial personnel ideas needs to be improved.
In developed countries, capital management has become
the basic ideas and methods of modern corporate finance,
but it is still a relatively new concept in china, and it will
be a long process to shift from production operation to
capital management. Capital management is different
from product management, commodity management and
asset management, but a capital-oriented approach, merg-
ers, acquisitions, and restructuring are regarded as the
main ways of the capital management. Capital manage-
ment is continuous process that started from the capital
rising, and in turn through the use of capital, the circula-
tion of capital flow and capital appreciation to capital
income distribution. Finance staffs should have global
and system awareness to co-ordinate capital to better
serve the development of enterprises.
3.2. About the Virtual Financial Budget
Budget is an important function in financial management,
however, a considerable number of enterprises have not
yet establish the budget management system. Some en-
terprises have built their budget systems, but it has not
been seriously implemented in the production and busi-
ness activities; Some enterprises lack unified planning
and control to the revenues and expenditures, sometimes,
even the funds of production and operation is arbitrary
changed to engage in long-term investment, and result in
cash flow imbalance and lack the ability to pay for. Some
enterprises budget is unrealistic and unscientific on ac-
count of lack of stringent measurement standards and
assessment ways, so the cost constraint is weak. The
budget system must have a matching control, assessment,
analysis, and incentive etc measures.
3.3. About the Loose Fund Settlement and Weak
Supervision System
Fund is the blood for enterprises, th e strict financial con-
trol and scientific, reasonable financial management can
enable the businesses to operate orderly. Otherwise, en-
terprises can not run smoothly. Some enterprises can not
control the cash flow orderly because lack viable as-
sessment methods, pre-control fatigue, and the weak au-
dit oversight, some corporate don’t know subsidiaries
position, including investmen t and financing information ,
receipt and expenditure of funds, external guarantees etc
contingent liabilities, and profits allocation etc, so they
always make the investment decision arbitrary and in-
complete, and lead to less effective use of funds. It can
better adapt to the financial management, service, or
even to guide the business to establish and improve fi-
nancial control system.
3.4. About the Low Efficiency of Fund Use
How to co-ordinate effectively funds within the group
companies of enterprise groups, is worth serious consid-
eration. A useful attempt is to set up internal bank or
specialized financial company. For most enterprises, low
efficiency of fund use or payment difficulty is due to lack
of fund use plan and budget, or idling funds[4].
3.5. About the Low-level Management Way and
IT has penetrated into all aspects of business manage-
ment. Financial management, as one of the core content
of enterprise management, is also influenced no excep-
tion. Internationally, 80 percent of the global top 500
enterprises have built their own enterprise management
system regarding financial Control as the core. More than
90 percent of users think they have greatly enhanced
management efficiency and competition in market. Al-
though IT has been widely used in domestic enterprises,
most companies are still stuck at the accounting level
difficultly to reflect dynamic operations and not fully
meet the information application customization needs in
Internet age, so the breadth and depth as a management
function need to be improved in china.
4. Countermeasures to be Taken in the
Current Corporate Financial
Globalization has led to fierce market competition. Fi-
Copyright © 2013 SciRes. IB
To Update Ideas, to Explore New Model of Financial Managemen 203
nancial management is playing an increasingly important
role in enterprise management, some of the traditional
financial management system, capital operation mode
and supervision means are facing serious challenge. In
order to improve the corporate financial fund manage-
ment and information system, many companies’ financial
fund management philosophy, management models,
management tools and methods need to be explored and
The author believes that enterprises can try to strengthen
financial management from the following areas accord-
ing to the cu rrent situation and ch aracteristics in China:
4.1. Financial Fund Management would be
Determined as the Core of Enterprise
First, financial management idea should be changed, and
then attaches great importance to the role of enterprise
financial funds management in the production and opera-
tion. As an economic system, enterprise is essentially a
cash circulatory system - Enter cash outflow of cash
inflow of cash outflow of cash, Financial man-
agement objectives are tightly bound to be strengthened
with corporate strategic objectives, and a series of regu-
lation regarding the financial fund management as the
core of enterprise management should be set up to ensure
and promote enterprises to strengthen the financial fund
management work. Fragmented, inefficient for wide-
spread use and other outstanding issues in the enterprise
funds management process need to be improved:
1) Centralized funds management. Started from funds
centralized management, it means internal settlement
center system should be established, improved and pro-
moted to strengthen the unified management of funds to
play better the role of monitoring, services and transfers
fund surplus and deficiency. The fact indicated that both
the internal bank and th e intern al financial company have
been proved to be a good institutional arrangements and
improved capital efficiency.
2) Implementation of comprehensive budget manage-
ment system. To protect the orderly flow of funds, enter-
prises should establish and improve the overall budget
management mechanism. Budget preparation, analysis
and assessment should been implemented in all aspects
of Production and operation activities, and regard the
budget as the statutory basis of the internal organization,
and all income and expenditure of fund will be brought
into strict budget management.
3) Confirming the core of cash flow in enterprise
management. Monitoring, analysis and forecasting to
different categories cash flow need to be strengthened.
Enterprises need limit strictly the capital expenditures
without budget, and th e implementation of large su ms of
money must be tracked and monitored. Putting and re-
covery of funds w ould be maintained in a vir tuous circle
as possible. In accounts receivable management, raw
materials and inventory management, equipment acquisi-
tion and management, these work need to be arranged
well so that company can better coordinate the relation-
ship among liquidity, safety and effectiveness
4) Companies should establish strict intern al supervi-
sion and control system to preserve the corporate assets
and ensure true and reliable accounting information re-
ported. Accountant assignment system can be tried to
make a chief financial officer, the chief financial officer
and accountants to play better the supervisory role to
prevent the occurrence of asymmetric information and
internal control problems; not only would the internal
audit system be established and strengthened, but also
would be tried to play the role of internal management
better from the "post-supervision" to advance forecasting
and real-time monitoring, this will help enterprise to en-
sure the realization of production operation goal, eco-
nomic interests not violated, and eliminating distortion of
financial information.
4.2. To Establish Financial Concepts of Capital
Modern corporate finance has two specific goals: The
first goal is to improve the financial situation of enter-
prises. Financial sector implemented the financial func-
tions by financing, investment management etc, and
make enterprises get stable source of funds and reason-
able asset structure so as to sustain their own survival
and development. The second objective is to achieve
financial benefits and capital appreciation. The core of
capital appreciation is how to increase the return on
1) Management of capital stock
Management objective of capital stock is to make the
existing capital used well and gain the potential eco-
nomic benefits fully, which come from resource stock
not fully utilized - idle capital and low capital utilization.
Enterprises can gain revenue by sale, restructuring and
leasing these assets.
2) Management of Capital increment.
Management purposes of Capital increment lie in:
First, to optimize the scale of business economies, for
this, enterprises should properly handle the relationship
between capital investment and economies of scale to
avoid blind expansion of investment; second, to acceler-
ate technological transformation and innovation to gain
technological progress revenue, for this, enterprises must
correctly handle the relationship between income and
riskFinally, enterprises must improve project feasibility
study to reduce unnecessary risks.
Copyright © 2013 SciRes. IB
To Update Ideas, to Explore New Model of Financial Managemen
Copyright © 2013 SciRes. IB
3) Management of capital allocation
The capital allocation is the core issue of capital man-
agement, and its purpose is to enhance the economic
benefits by resource allocation. Two problems will be
thought in resources allocation: the first question is how
to allocate resources to maximize the output in certain
resources; the second question is how to configure the
resources to put into the smallest under certain output. In
addition, from the perspective of corporate equity, how
to optimize the structure of liabilities and owner's equity
also belongs to the scope of capital allocation manage-
4) Management of capital gains
Capital management is a cycle, often starting in fund-
raising, and ending in income distribution; capital gains
management is an important part of capital management,
both the focus and also the starting. Capital gains man-
agement consists of three processes: process manage-
ment, performance management and distribution man-
agement. The process management mainly includes price
management, revenue management, cost management
and process management; the performance management
includes profit management, profitability management
and capital gains appraisal system; the distribution man-
agement includes distribution standard, distribution pol-
icy, distribution modes etc. at this stage, Corporate fi-
nance should focus on exploring the performance evalua-
tion and compensation of operators, equity management
style and distribution form.
4.3. To Build Management Information System
Based on IT
Application of information technology has become the
basic premise for enterprises to participate in global
market competition. Informatization is an inevitable
trend; building compatible information system platform
will make enterprises to achieve financial information
and business process integration. The most advantage of
management information system is curing regulation and
achieving information integration and data sharing
among financial system and sale, supply, production
systems, and also makes budgets, billing, and monito ring
standardization, and ensures the flow of funds, logistics
and information flow placed under surveillance. Con-
struction of informatization is a gradual accumulation
process for step-by-step, enterprises should study the
implementation of program systematically according to
their own circumstances. At the beginning, enterprises
should choose the right financial management software
to carry out financial and business integration to improve
the efficiency of funds and avoid financial risk, when
condition are ripe, gradually introduce ERP system based
on Internet technology to realize the full enterprise in-
formation management system.
4.4. To Improve the Overall Quality of Financial
In market economy, enterprise competition is ultimately
the talent competition. The primary task to improve fi-
nancial management is to comprehensively improve the
overall quality of financial staff. Information technology
has set the financial staff free from the daily tedious
work, and the center of fi na ncial staff work has been shift
from the traditional day-to-day management to abnormal,
exceptional control and advance prevention, so the pro-
fessionalism and knowledg e structure of the finance staff
need inevitably to be raised. In additio n traditional finan-
cial theory, methods, skills and professional ethics, fi-
nancial officers should grasp data processing and analy-
sis technology and familiar with more management the-
ory and methods. So, financial and accounting staff
needs continually to be trained, and the implementation
of the lifelong education system is an important guaran-
tee to comprehensively improve the quality of financial
and accounting personnel.
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mocracy and Construction Press, 2010.11
[2] H. B. Li, Financial Management, Lixin Accounting Pub-
lishing House, 2005.1
[3] M. Wu. On Corporate Finance Issues after China's Ac-
cession to the WTO,
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Financial Management Problems in Post-crisis Period,
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