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The Role of the Finance Department

Higher Grade Business Management

2009

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Financial Objectives

Different types of organisation have different financial objectives:

e.g.– Vodafone: aim to make a large profit.– Charities: aim to get many donations and help people

as best they can.– Clubs: aim to use funds to give the best possible

service to their members.

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Good Financial Management

• All of these different types of organisation share the need to have good financial management.

• The efficient management of finance is vitally important to the success or failure of an organisation.

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Good Financial Management

• Every organisation must make sure that it has enough money:– to pay wages and salaries.– to pay bills (e.g. suppliers, electricity, advertising).– to develop new products and services.

• Organisations must also check how much they are spending - organisations which have high costs, are often unsuccessful.

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The Financial Function

Ensures that:– There are adequate funds available to acquire

the resources needed to help the organisation to achieve its objectives.

– Costs are controlled through monitoring of budgets.

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The Financial Function

Ensures that:– Not only that adequate funds are available, but

that they are available at the right time. The cash flow of an organisation is also important.

– Profitability of the organisation is controlled, ensuring that the agreed profitability targets are being met.

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The Need for Planning

The care and planning of the financial

needs of an organisation are as necessary

as the planning for operations, marketing,

human resources and administration.

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The Main Tasks of the Finance Department

The Finance Department has three main tasks to help the organisation achieve its objectives:

– Payment of wages and salaries.– Payment of accounts.– Maintenance of financial records and

accounts.

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Payment of Wages and Salaries

• Organisations need to keep their staff happy, one way that this can be achieved is by ensuring that they are paid the right amount at the right time.

• The Finance Department will make necessary deductions for tax and National Insurance.

• They will also provide information to HM Revenue & Customs to make sure that taxes paid have been correctly calculated.

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Payment of Accounts

• The Finance Department needs to ensure that it makes payment to its suppliers on time, as well as collecting money owed by customers.

• Payment to suppliers fall into two different categories:– Cash– Credit

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Maintenance of Financial Records

• The Finance Department will record financial transactions, so that at the end of the year or period it can prepare final accounts.

• Financial records are a history of the organisation’s activities.

• Under the Companies Acts of 1985 and 1989, it is an offence for limited companies not to maintain proper financial records.

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Business Decisions

Without proper financial records, organisations are unable to operate efficiently or effectively:

– How much money has the business spent?– How much has the business sold?– What is the value of the business’s assets?

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Answering Questions

The job of an accountant is to use the information from the accounts to answer questions such as:

– How is the company performing?– Have we done better than last year?– How much tax will we have to pay?– Can we afford to expand or buy new

equipment?

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Identifying Appropriate Financial Information

• One of the major roles of the Finance Department is to identify appropriate financial information, before communicating this information to managers or decision makers.

• By communicating this information the Finance Department ensures that informed judgments and decisions can be made.

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Different Forms of Financial Records

Financial Records can take several forms:– Daily record keeping.

– Manual record keeping.

– Electronic record keeping.

– Information for internal decision making.

– Information for internal reporting.

– Information for external reporting.

– Information as a requirement of law.

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The Main Financial Statements

• The Balance Sheet

• The Trading Profit & Loss Account

• The Cash Flow Statement

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The Role of Finance

Payment of Wages and Salaries

Production of Internal Financial

Information (e.g. budgets)

Production of Organisation’s

Annual Accounts

Payment ofInvoices

Analysis of Financial Information

(e.g. ratio analysis)

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The Next Few Weeks …

You will develop your knowledge in:

– Financial statements and reporting.– Financial analysis (i.e. ratio analysis).– Cash flow.– Preparing budgets.– The uses of financial information.– The users of financial information.

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Task

• Read pages 176-178 from the textbook “Higher Business Management”

• Using the knowledge gained from this presentation and the relevant pages in the textbook, answer the questions on the Role of the Finance Department.