What Is the Role of the Finance Department in Business?
By Indeed Editorial Team
Updated 12 October 2022
Published 15 November 2021
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
For businesses to achieve financial success, it's important for them to have a financial strategy with thorough oversight for the entire company. The finance department oversees income and expenses throughout a company to ensure that it can sustain its operations and invest in expansion. Researching the different functions of the finance department can help you plan your career in finance and understand how each of the responsibilities of finance positions influence the rest of the company.
In this article, we explain the role of the finance department in a business and provide details about the duties of each aspect of a finance team.
What is the role of a finance department?
The primary role of a finance department is to manage money for an organisation efficiently to directly contribute to that organisation's mission and goals. The finance department of a company exists to facilitate ethical and practical budgeting, investment and spending for all other parts of the business. Professionals who work in a business's finance department control the income and expenses of the organisation to ensure that they have enough resources to finish projects and meet their goals. They provide direction to department leaders and managers in other departments about their budgets and financial policies to guide company-wide development.
Key finance department functions
Businesses have a finance department as a central team that oversees every company function related to money. Here are some of the main responsibilities of a finance department within an organisation:
The finance department is responsible for locating funding options for an organisation. People on the finance team research potential ways to secure capital for expanding the company, creating new projects or sustaining operations during the startup phase. They determine if the business qualifies for loans, connect with investors about raising equity capital and develop other plans for financing the business's operations. Finance department leaders also maintain connections with shareholders and manage ongoing investor relations. The finance department compares the risks and benefits of each financing option and determines which one best matches the needs of the company.
Managing an organisation's budget is one of the key functions of the finance department. The finance team reviews the company's overall financial goals and strategies to plan spending throughout a fiscal period. They determine how much money is available for a certain period of time, then decide how to spend and invest those funds to achieve ideal outcomes for the business. The finance department can also direct other departments on how to allocate their budgets and develop practices for documenting and managing expenses for each team within a company.
Documenting income and expenses is an important part of maintaining a functional company with consistent, transparent business practices. People in the finance department are responsible for keeping records and receipts that detail all of their purchases, sales and other transactions with vendors and clients. This promotes ethical accounting practices, makes it easy to track interactions with clients and facilitates any financial audits. Financial record-keeping includes entering accurate information into databases, organising financial documents and regularly reviewing these records for accuracy. The documents that the finance department stores can relate to employee compensation, investment income, sales and spending.
Members of the finance department oversee the processes of making and receiving payments. Within the finance department, employees manage accounts receivable, which relates to all payments that customers make to the company, and accounts payable, which involve all payments that the company makes to vendors, suppliers and service providers. They ensure that the company pays the money it owes according to contractual obligations, sends invoices and makes efforts to retrieve outstanding debts from clients. The finance department supervises all incoming and outgoing transactions in accounts receivable and accounts payable for each financial period, balancing the ledger for the business.
The finance department is also responsible for the actual bank accounts and treasury of the company. They ensure that the company has enough available cash in its accounts to make purchases, manage company cards, sign off on approvals for account access and track the amount of credit the company has available at any given time. Corporate treasurers can also liquidate assets into cash, oversee foreign exchange of currency for international business and track the value of long-term investments as they relate to the overall value of the company's assets.
Business leaders seek guidance from the finance department about how to invest available funds. Advisors in the finance department research potential opportunities to make money by identifying lucrative investment opportunities that relate to the company's business interests. They prepare reports on the projected return on different opportunities and explain the benefits of various investment strategies, including estimates of how much they can earn for the company. After making suggestions on investment strategies, financial professionals maintain investor relationships by reporting on the performance of each investment.
Assessing financial risks is one of the ways the financial department supports the success of a business. They can manage risk for a company in a variety of ways, including reviewing the terms of loans, researching the credit history of their clients, studying fluctuations in the stock market and reviewing price changes in their industry. By conducting financial analysis for multiple aspects of how the company operates, professionals in the financial department can provide in-depth, evidence-based advice about the best business decisions to make.
The finance department compiles and reviews data about the business's sales and expenses, then uses that information to make predictions about future business operations. Financial forecasting enables business leaders to adjust their strategy to realistic predictions about their volume of customers and sales over time. Trends related to the cost of supplies and manufacturing can also influence financial forecasting. Members of the finance team incorporate many factors into their projections, including regular fluctuations in the market, plans for expansion and capital from new investors.
It's important that organisations comply with legal regulations on financial reporting. The finance department creates procedures and controls that establish appropriate governance of company finances, ensuring that everyone in the company manages money appropriately. Financial controlling involves auditing the company's financial practices, communicating with regulatory officials and ensuring that company assets align with financial records. They also prepare any essential reports for public disclosure of the company's profits or financial policies.
Positions in a finance department
While small and midsize businesses may only have a few professionals in their finance departments, large companies often have whole teams of professionals dedicated to managing the business's financial needs. Depending on the specific structure of the finance department, members of the finance team can serve multiple roles or focus on specialised tasks. Here are a few of the common positions within finance departments that you can explore:
Chief financial officer: The chief financial officer, or CFO, is a company executive responsible for creating the company's financial strategy. They often collaborate with the chief executive officer to implement financial plans for the company that support the business's overall mission.
Controller: Financial controllers supervise accounting activities within a business, including establishing policies and reporting procedures for compliance. They oversee billing, ledger reports, financial analysis and accounting database administration for the entire finance department to promote consistent outcomes for the business.
Accountant: Depending on the size of the business, finance departments may have multiple accountants who assist with tracking client transactions and preparing reports on the company's financial development. Accountants also develop budgets, help submit tax documents and manage financial paperwork for business partnerships.
Financial analyst: In the finance department, financial analysts review data to generate insights about how to operate the company and advise executives on strategic business decisions. They conduct research on investment opportunities, market conditions, financial models and sales strategies to find methods to increase profits and decrease expenses.
Auditor: The finance team upholds regulatory standards by hiring internal and external auditors to review their financial ledgers and policies. Auditors systematically sort through financial reports to look for discrepancies and make suggestions about how to improve documentation standards.
Financial planner: Budgeting, forecasting and strategic development are the key duties for financial planners. They identify the company's long-term financial goals, review the current resources they have available and create a budget and investment plan for the organisation to achieve those goals.
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