One often wonders about the role of the Finance Department in an organisation -- even though the name suggests that it’s something to do with money but there is a lot more to it. Why? The bigger the organization, the more defined is the role of a finance department that’s managed by CFOs. However, in case of start-ups, the financial league is structured in a way that which helps the company to make quick business decisions and streamline its work in a more cost-efficient manner.
While managing and accounting money for the company is paramount, it also covers a wide range of activities in order to achieve financial stability for the overall system. An effective finance department can only be established through careful analysis of the best course for its functioning, which also includes the practical implications of the plan. Here are few essential tasks that are the responsibilities of the finance department.
Strategizing
Strategizing is one of the prime functions of this department, and is generally believed to enhance the performance of the organisation. Today, availability of sophisticated tools to collect data has become a lot easier to set realistic long-term goals with a refined strategy. Sometimes, it may result in cutting off expenses or buying in bulk to get value deals for achieving a certain goal. Every purchase made has to have a long-term goal in mind because actions made to amplify short-term goals can impact long-term goals. For example, cutting down the budget on research and development can have a negative impact on the growth of the company. Hence, strategizing the right way has to be done responsibly by the authorities concerned.
Bookkeeping
Bookkeeping is maintaining fundamental records of each and every financial transaction; no matter how small it is – if it’s part of the business it has to go in the books. These transactions include purchases, invoices, sales and payments by an individual, a vendor or a corporation associated with the company. Finance teams are answerable for ensuring that all accounting is made properly and there are sufficient supporting documents for certifying each entry. In start-ups, the financial department is also responsible for managing cash, payable/receivable and salary disbursement. In large companies, the scenario could be different as there could be different teams taking care of these functions and it may or may not be directly associated with the finance department.
Data Analysis
A Finance Department’s work is not restricted at just maintaining the records. At any given time they usually have access to a large number of data files with a good understanding of the data as well. A person working in this department needs to be skilled at analysing the data and providing a conclusion to what the numbers are indicating. These analyses come in very handy before taking an important business decision; they also give a fair idea of understanding the budget needs before starting a new project. The department is always in a position to analyse efficiency, assess risk, and take a stance on the projected decisions made by senior management.
Capital Budgeting
People often think of strategizing and budgeting as the same things, which is not exactly true. It is the function responsible for selecting from the various uses of available capital. After all, most of the established start-ups will have money available which they have raised through various rounds of funding to invest in the business, with the goals of either increasing sales or decreasing expenses. However, the opportunity for capital expenditure typically exceeds the available amount that can be spent. Hence, capital budgeting creates mock cases to identify the effectiveness of new projects to be launched or carried out. An enhanced Capital Budgeting function cannot only help forecast benefits but also tracks these benefits with time to evaluate whether the capital investment was as fruitful as anticipated.
Tax and Compliance
Operating a start-up or an MNC both involve paying taxes as per the law, and doing the same demands a lot of calculations form fillings. Using the financial statements as a base, along with other multiple tools of the information created through bookkeeping, the finance department needs to make sure that all of the government documents and forms are sent complete, correct and on-time to the income tax department. Well-structured compliance and taxation functioning need to go one step beyond normal compliance and attempts to locate ways to minimize tax to a possible extent, in order to increase the company’s net income.
By: Manoj Sharma- Co-Founder and Head of Finance, Policybazaar.com
