THE ROLE OF FINANCE FUNCTION IN AN ORGANISATION
The finance function is an important part of any business/organization that seeks to ensure efficient management of financial resources and maintain sustainable and viable growth in the long run. The processes carried out by the finance function relate to the planning, execution, control and maintenance of a company’s financial resources. To this end, the finance function in carrying out its activities will perform the following roles.
- Decision-Making and Control – Using measures like ratio analysis; financial statement analysis; and financial forecasting, the finance function is able to make financial decisions and exercise control over the financial resources of an organization. These measures are used to show how efficiently an organization is using funds and identify company activities that will improve revenues and profits.
- Planning – Finance function is in-charge of budgeting for the organization, an exercise that identifies the needs and priorities of the organization and plans activities and resources during an accounting period. Budgeting is an important activity that monitors the inflow and outflow of finances.
- Cash Flow Management – Finance function monitors accounts payable and accounts receivable to ensure that the organization has sufficient cash flow and working capital to meet operational expenses.
- Capital Management – Capital management involves estimating the capital needs of the organization, determining the appropriate funding structure, and choosing the appropriate sources of funding. Finance function is tasked with this role to ensure that there is a good balance between company liabilities and assets to be used to repay the debt.
- Allocation and Utilization of Resources – Finance function ensures that company financial resources are invested in the right mix of non-current and current assets so that returns can be spread over time and the organization remains profitable, sustainable, and viable in the long run.
- Investment – Finance managers will decide on how profits will be utilized, whether to distribute profits to the shareholders as dividends, to retain and plow them back into the business, or to pay the employees a bonus for performing well.
- Reporting – Finance department is responsible for preparing the financial statements of a business, which show the current results of business activities and can be used to forecast the future outcome of planned investment activities.
These roles vary from company-to-company depending on the size of the business and its stage in the business life cycle.
- At start-up stage; finance function performs the most basic roles such as bookkeeping and financial reporting, cash flow management, and the allocation and utilization of resources.
- At growth stage; finance function would need to put in place controls to make financial reporting more efficient, carry out budgeting to help plan the activities and resources of the company, and make decisions on how to utilize the profits or surplus funds of the company.
- At maturity stage; finance function expands and now performs detailed analysis of company performance and the performance of different products/lines of business undertaken by the company. The function also carries out capital management to ensure the right balance of company assets and liabilities.
- Talentedge (2022). 8 Major Roles and Functions of Financial Management. https://talentedge.com/articles/8-major-roles-and-functions-of-financial-management/
- Wallstreetmojo Editorial Team (2022). Finance Functions. https://www.wallstreetmojo.com/finance-functions/
- Harry Hewson and Oliver Dunne (2022). What is the role of the finance function at different stages of company growth? https://www.caminosearch.co.uk/blog/2021/06/what-is-the-role-of-the-finance-function-at-different-stages-of-company-growth?source=google.com