Finance is one of the major pillars of any organization and an essential ingredient to a successful business. Nowadays, a finance department has a broad range of roles to carry out within or outside an organization. The performance and success of any company greatly depend on how well the finance is handled. Keeping a close watch on the financing function is very important for the smooth operation of a company.
The term, finance has to be understood clearly as it has different meaning and interpretation in various contexts.
What is a Finance Department?
Finance Department is the part of an organization that is responsible for acquiring funds for the firm, managing funds within the organization and planning for the expenditure of funds on various assets. It is the part of an organization that ensures efficient financial management and financial control necessary to support all business activities.
Roles and Responsibilities of a Finance Department
The contributions of finance department to any company and how these contributions positively affect organizational performance will greatly depend on factors such as the extent to which the owner/ manager is involved in his company. The roles and responsibilities of a finance department include but are not limited to:
a. Bookkeeping
This is the most basic function of the finance department. It involves the day-to-day recording, analysis and interpretation of a company’s financial transactions. This will include the tracking of all expenses (purchases, payments etc.) and sales of finished products. In some startup companies, this role is often carried out by a bookkeeper who might be replaced by more specialized payables and receivables clerks as the company grows or expands its operations.
b. Management of company’s cash flow
It is the duty of the finance department to manage all cash flows into and out of a company and ensure that there are enough funds available to meet the day-to-day running of the company. This area also encompasses the credit and collections policies for the company’s customers, to ensure that vendors and creditors are paid correctly and on time and that the company is also paid correctly and as when due.
c. Budgets and forecasting
In this function, the finance department works with managers to prepare the company’s budgets and forecasts and also give feedback with regards to the financial standing of the company. This information can be used to fulfil the cash needs of each department, plan company staffing levels, plan asset purchase and expansions at minimum cost before they become necessary. The finance department can also use past records from respective departments to make better budget and forecast over long-term and short-term time horizons.
d. Management of Taxes
Running a company involves paying tax, and it is the duty of the finance department to handle tax issues. This includes creating good corporate relationships with government by remitting PAYE (Pay As You Earn) to the relevant authority, and ensuring that implementation of tax matters are done within the framed policies.
e. Financial Reporting and analysis
Financial reporting and analysis is the function that takes raw accounting entries and transforms them into meaningful, usable and comparable financial statements. The finance department contributes to organizational growth by measuring and reporting on regular bases, key numbers that are vital to the success of the company. This will likely include a summary of all funding sources, expenditures and reserves available for future use (excluding those already committed and budgeted for current period) some non-financial information. And are usually communicated to managers in a logical and understandable format.
f. Assist managers in making key strategic decisions
The finance department provides company management with information necessary to make strategic decisions such as which markets or projects to pursue, the payback periods for large capital purchases, decision on what should be given out as dividend out of the company’s earnings and what to plough back into the business, the best financing mix that could yield the company the nest profit, decision on how to allocate funds to investment etc., thus, making sure that money is being used in the best way.
The activities expected from a finance department cover a wide range from basic bookkeeping to providing information to assisting managers in making strategic decisions. What to expect from your finance department will depend largely on factors such as how much involvement the owner/manager has in the organization.
At the base level, your bookkeeper will be responsible for all the day-to-day transactional accounting for the business. This will include the tracking of all transactions and the management of any government reporting. In very small owner-managed businesses, this role is often filled by a family member with accounting experience. An outside accounting firm is usually used for annual financial statements and returns. In larger organizations this role will extend right through to preparing the financial statements with an external auditor engaged for assurance purposes.
With the must-do’s taken care of, the finance department can now start to contribute to the management and improvement of the operations by measuring and reporting regularly on key numbers crucial to the success of the organization. Management accounting information is information that managers can use to monitor the operations and decide where further attention may be required.It will likely include some non-financial information and should be communicated to managers in a way that is easy to understand.
Looking forward, the finance department will work with managers to prepare the organization’s budgets and forecasts, and to report back on the progress against these throughout the year. This information can be used to plan staffing levels, asset purchases and expansions and cash needs, before they become necessary. Some organizations often ‘plan’ by the seat of their pants, while organizations know it is important to have some idea of where you want to go before you start going there.
Finally, the finance department should be called upon to provide information to assist managers in making key strategic decisions, such as which markets or projects to pursue or the payback periods for large capital purchases. The finance department can often contribute an objective perspective based on special financial assessment techniques.
In summary, some organizations know the finance department should be considered a resource to assist managers in the running of the business. With the growing popularity of outsourced finance departments, it is possible for even small businesses to have access to all of the benefits of a full finance department, through part time professionals, at a fraction of the cost of employing a full time finance department.
To know the specific roles of each person in the finance department of the company, refer to this link: https://hoithr.freshdesk.com/a/solutions/articles/63000268820