Setting up a finance department is perhaps the most significant steps to starting an organization. In this article, we will look at 1) what exactly a finance department is, 2) the main objectives of this department, 3) the functions it carries out, 4) the elements comprising this department, 5) positions required to run this department, and lastly 6) the importance of knowing information technology when running the finances of an organization.
- 1 WHAT IS A FINANCE DEPARTMENT?
- 2 MAIN OBJECTIVES OF A FINANCE DEPARTMENT
- 3 FUNCTIONS CARRIED OUT BY A FINANCE DEPARTMENT
- 4 SETTING UP A FINANCE DEPARTMENT
- 5 HIERARCHY OF FINANCE DEPARTMENT
- 6 IMPORTANCE OF INFORMATION TECHNOLOGY IN FINANCE
WHAT IS A FINANCE DEPARTMENT?
As the name suggests, a finance department is that imperative and highly significant component of a business which is responsible for managing and organizing the flow of cash and all things related to it. This department can be considered the sole and core crux of a company’s growth and development. How well a finance department functions shows how well the company performs. This department is responsible for all activities related to finance which include:
- Organizing finances
- Managing them
- Auditing them
- Controlling and distributing them
- Planning them
- And accounting them
MAIN OBJECTIVES OF A FINANCE DEPARTMENT
The main and perhaps the most significant objective of the finance department is to ensure the control and management of all finance related topics. In turn, the department ensures that those finance topics are delivered and utilized in such a manner that the highest aims of the organization are achieved (e.g. profit maximization).
With a well-functioning and a smoothly running finance department, the company is given the opportunity to be able to make well-informed decisions. These decisions hold great significance and oftentimes have a direct impact on the growth of the company and the received profit. The finance department, therefore, is held responsible for being able to maintain records over a long period. This helps the managers and decision makers of the company to be able to see the impact of the finance on the company, and thus decide better for all future prospects.
This department aims at diligently keeping a track record of all financial transactions for future references. It also carries out audits with the help of professional auditors to ensure and calculate where from and how the company went into a loss or gained a profit.
While a CEO is an individual who is responsible for running a company, there is a CFO role of a person who manages the finances of this company. For CEO and management of the company it is essential to know how well or how poorly the finances are being received. The reason for that is that all decisions for the better performance of any company are solely sprung from the finances. Therefore, the members of the finance department are desired to keep thorough and continuous communication with the managerial people. The track records kept over the years also help them for example to decide whether they want to continue working with a particular client or not.
Thus, it is safe to say that any company or organization cannot run or perform smoothly without a well-functioning finance department. The aims this department aspires towards are significantly essential to result in the expansion of the company.
FUNCTIONS CARRIED OUT BY A FINANCE DEPARTMENT
The finance department has the very delicate responsibility of keeping the financial records under check so that when the time comes for example to make payments or assess records, everything is available in an updated form. If necessary, companies go into a debt or take a loan from a bank to make sure they get back on track. At times like these the manager or one sole individual does not take up the responsibility of tracing when the loan is taken and returned. Nor do independent partners of the business run these services themselves. This is the function of the financial department always to be aware of where payments need to be made and where payments need to come from and when. If the finance department does not carry its functions with regularity then, a company can very easily be sued due to an unpaid debt and even go into an irrecoverable loss.
Following are some of the key functions carried out by finance departments all over the world.
The preparation and creation of all financial records
This involves the thorough preparation of ultimately creating concrete financial records based on where they are being sent and where the finances are being received from. They also keep bi-monthly to annual records of all the profitable investments and losses made by the company. Thus, they maintain the data in order to ensure that all future decisions are well-informed and based on previous profits.
It is the responsibility of the finance to keep track of all departments using up the finances of the company. They also then in turn need to provide records that show where the money was spent and for what purpose.
Prepare and plan internal financial information
Every company needs a budget according to which they function. Without a budget, a company cannot function wisely. This is another responsibility of the finance department; to provide the decision makers with a rough budget they can base their decisions off of.
Analyze current financial performance
The finance department is responsible for reviewing financial performance throughout the year and analyzing how fast funds are being spent, how quickly revenue is being generated, and anticipate financial trends for the year.
The finance department needs to make sure creditors are kept track of and payments are made in time. They generally keep track of larger loans and investments that need regular monitoring, or make a larger impact on the business.
Pay employees wages and salaries
Most significantly, when it comes to the paychecks and the salaries to be given to the workers and the employees, it is this department’s job to do so.
Therefore as it can be seen above, all delicate matters of finance, payments and salaries are the core functions of the finance department. They ensure a smooth flowing system at the back-end so the company can function seamlessly.
SETTING UP A FINANCE DEPARTMENT
The development of a finance department involves a lot of research over a period of time. Here are the elements that need to be kept in mind.
These are the reports on the basis of which the manager and other members of the finance department can track and anticipate the extent on which they are achieving their aims. It is with the formation of these reports that the organization is governed, monitored and to an extent controlled. These reports include the culmination of information and data in black and white from all sub departments; taxation, auditing, sale, purchase and others. These reports provide to the company a written proof of how well or how poorly they performed allowing them to improve their stance for the future.
Accounting Records and Source Documentation
As the name suggests, this involves the documentation of the position of the finances in terms of how they are being used by the organization in sale and in purchase. The documentation of this progress allows the department to make well-informed decisions in the future.
The individuals at the managerial position in the finance department hold the responsibility to ensure that the system is under control. They manage and maintain the internal control of the system by keeping a check on the employees, the assistants and the accountants to ensure they perform their job well. By doing so they are able to implement policies when need be and carry out certain positions if they feel the job is not being done as it should. The sole purpose of ensuring that all members within the department perform their individual duties ultimately ensures a profitable future for the organization. Thus to maintain an internal control, the managerial members of the department sustain the environment of the work area. They make sure that the accounting system is updated at all times and has been reviewed. Lastly, they also take control of all managerial to minuscule procedures to ensure nothing goes out of hand.
Any running organization is always dealing with finances at various levels. This is why it is essential for them to secure the management of their cash flux allowing the guarantee that the company has a record of all the cash leaving and being received by them, to have definitive records of this cash flow and always remain aware of who they need to pay and who needs to pay them.
HIERARCHY OF FINANCE DEPARTMENT
There is a team of several people that ultimately make up the financial department in every company. While setting one up, following are the members that must be appointed to ensure a smooth performance of the system.
The responsibilities of the individual in this position are perhaps the most significant as this particular figure makes all the financial decisions. It is the financial director’s job to ensure that the performance of the company does not falter; the management and assessment of all finances, the approval and disapproval of budgeting and above all directing and assessing other members of the department is done flawlessly.
This particular individual working as a chartered accountant holds the responsibility towards preparing tax statements for the smooth running of the company and its accounting system. By carefully scrutinizing the accounting records of the past, the accountant reviews current records as well. The Chartered Accountant must run audits by meeting with the clients in their own businesses to ensure and keep a check on the financial position of their organization. Some accountants work in the tax area of the finance department and some in the auditing; both with independent responsibilities ensuring there is no hindrance in the way of the company’s financial growth.
Financial manager for account
The basic responsibilities of a financial manager in the finance department are to manage and analyze the funds. This particular individual manages a record of all the funds and allows their flow in and out of the company. On the basis and assessment of this information the manager then creates a budget for the company to provide it with the closest most profitable strategic plan and direction. Thus, this particular individual possesses a great degree of responsibility not just in the department but in the company as a whole.
Manager for financial services
The function of the manager of services is simple; to keep track of the law changes that may be announced in finance legislation. It is the job of the manager of services to ensure that what the company plans on doing is in coherence with what the law allows. In order to ensure nothing hinders this growth they keep harmonious relationships with all bankers, auditors and other organizations.
The purpose of an accountant is to perform several minuscule tasks such as analyzing and collecting the data later required by the manager. This individual is required to analyze the trends and the requirements of a company to review and produce budgets and accounts for a project in the near future. Thus they serve several financial tasks.
Finance assistance for sale and purchase
The finance assistant for sale is required to formulate a budget plan for the organization to keep a thorough record of all the sales made. This includes everything from paying the employees, financing adverts to promote the company and paying off debtors and all else. Their job is to ensure that all the money leaving the company is being recorded for a better sale in the next year. Similarly the job of a finance assistant for purchase is to keep an efficient record of all items that have been bought or purchased to ensure which profited the organization and which did not. These are the members that make up a smoothly functioning and well-performing finance department.
IMPORTANCE OF INFORMATION TECHNOLOGY IN FINANCE
The running of a finance department always includes several records of significance and demands constant documentation of these records, all of which cannot be run without the help of a software. It simplifies the lengthy task of maintaining records, renewing them, updating them and then saving them. Hence the software being used holds a great significance in the smooth functioning of a company’s finance department. Here are some benefits of financial software.
- Automation: Everything is automated: a change made in one record is immediately updated in all other files.
- Reporting: It helps in reporting; it helps in the quick formation of reports following the formal business language.
- Function: It helps in functioning. Any data that ever needs to be transferred from one department to another can easily be done so by the click of a button. Transactions can be allowed or prohibited even when the bank itself is out of service so the organization suffers no halt.
- Convenience: It allows quick and hassle free deposits and transactions alongside receipts for future records. Everything needed to know about all employees can be stored in one place and looked at whenever. All record can be updated without any time wastage.
- Budgeting and bookkeeping: It helps in budgeting. A system provides a quick review of all past budgets allowing it to be easier for them to formulate and anticipate budgets for the future.
Therefore the significance of a finance department in an organization is colossal. Without a well-functioning and a smoothly running finance department, no organization can anticipate succeeding in the market. The ability to succeed and anticipate things before time are all instigated by the performance of this department, allowing the organization to make well-informed decisions and be able to control and maintain its overall performance.