Functional areas with specific roles exist in larger enterprises. Finance handles a company’s finances and assists in decision-making. This enables firms to function in today’s world.
The finance function can affect company activities by offering advise on various financial concerns, in addition to supplying financial information to other departments to assist in corporate decision-making. Click here to know about IAS salary.
For instance, the finance function may be able to advise on the various sources of financing accessible to a company or suggest ways to improve cash flow. The finance department also contributes significantly to business strategy.
The Purpose of Finance Function
The financial role has two primary purposes:
- To supply financial data that other business operations require in order to perform successfully and efficiently
- To aid in strategic planning and decision-making
- Smaller organisations rarely have the financial wherewithal to operate a dedicated finance department. Larger companies, on the other hand, can afford to hire specialists to oversee how they spend money and manage their finances
- Businesses work in a constantly changing environment. Internally, within the business, and outwardly, outside the business, the finance function keeps track of changes. The impact of these modifications on the company’s finances is then examined.
Providing Financial Information
The finance function’s primary responsibility is to guarantee that all financial records are correct and up to date. Managers may make poor decisions if they use information that is not reliable or current
Financial data may be overwhelming, especially in larger organisations. However, the following are the most prevalent types:
- Expenses — understanding how much a company pays its suppliers and whether or not these costs are within control aids profitability
- Knowing how much money the business is making and whether it is expanding or decreasing is crucial in making decisions
- Cash flow – It is critical to track and forecast the quantity of cash in the business to ensure that it does not run out
- Knowing the point at which a business begins to make a profit can have an impact on a variety of business decisions
- Profit and loss – When making business decisions, knowing whether the company is profitable or not is critical
- Business performance – assessing a company’s performance might help inform future judgments on what has to be improved.
Supporting business decisions
Financial data may be required by businesses for a variety of concerns and decisions. Some examples are:
- A marketing campaign – the finance department may set a budget for the marketing department to guarantee that the company does not overspend. The finance department may give sales and profit data throughout and after the campaign to assess its success.
- Managers will rely on the finance function to give information when making judgments regarding the best method for a corporation to expand. This information could include financial sources, costs, the break-even point, and any anticipated sales adjustments.
- Economic shift – A change in the external environment, such as a recession, may necessitate advise from the finance function on how the company might cut costs or enhance cash flow in order to stay afloat.
- Each of these decisions, as well as many others, emphasises the need for collaboration among all corporate functions. They demonstrate how business is interdependent.
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