The finance department of the company is responsible for fostering the financial health of the organization. They keep track of the company’s financial spending and all other activities. The finance department’s operation is so substantial that it influences all the different functions of the company.
Their responsibilities are massive and widespread. Some of them include the production of financial reports, control of investment, expansion plans, and strategies for long-term bounding projects. It means that all departments in a corporate setting have to work closely with the finance department.
Let’s understand some critical roles of the finance department:
- FINANCIAL PLANNING
Financial planning in a company is somewhat of a forecast. These predictions and analyses of the future financial needs determine how a company should use its resources. The role of the finance department is to keep long-term and short-term company goals in mind. Then. They strategize according to devised objectives. It is a very creative and analytical process. These plans predict the future revenue generation of the company and methods to optimize the process.
Every business has to make a profit, and of course, the finance department plays a vital role in that case. They are responsible for improving a product or service’s profitability, making the finance department the heart of the system. Only the most qualified individuals are competent for this position. Candidates often ask after their bachelor’s why major in accounting? The answer is that it paves the way to become an invaluable asset to every finance hub.
- DETERMINING THE STRUCTURE OF CAPITAL
The capital structure is the method a corporation uses to finance its assets. They use combinations of equity, debt, or hybrid security. You generally finance the overall operation and growth of the company with the capital. The usage of the finance department, hence, is the responsibility of the finance department. The main goal of this task is to let the capital earn its returns and redouble shareholder money.
- PROCUREMENT AND ALLOCATION OF FUNDS
The finance department is also responsible for determining the source of funds for the corporation. They work to ensure that the company receives legit and manageable funds. These funds must come from identifiable sources, and they must obtain them at the lowest rates. Once the funds are in place, the next step is to invest those funds wisely.
- TAX MANAGEMENT
Corporations have to pay taxes, and the finance department handles them. Financial managers maximize wealth ownership, i.e., by managing direct and indirect taxations and cash outflows. Legal claims and regulations that are implacable for corporate sectors need professional handling. Tax planning holds a vital position among prime business goals. The finance managers work to control taxable income and control the timeframe.
- MANAGE RISKS
Running a business is always risky. The corporation has to worry about the interest rates and changes in the currency rates. There are also risks of raw material prices skyrocketing or customers not paying their invoices. The finance department is responsible for monitoring these factors and reporting them to high management.
The finance department keeps a keen eye on the international market. They do background checks of clients’ credit standings and go through every other factor to consider all risks. Though nothing is certain, finance management certainly puts all the possibilities in perspective.
- FINANCIAL REPORTING AND ANALYSIS
Financial reporting is the declaration of financial results and related data to the company and all stakeholders. They report the progress of the company during a determined period. So this function involved taking all the accounts book entries and turning them into understandable financial statements.
Finance managers contribute significantly to the corporation’s growth by giving out this report regularly. These reports include a summary of all the sources from which funds got collected—accounts of the projects, expenditures, and the capital saved for future use.
The analysis of these reports plays a vital role in the organization’s growth. The company can statistically analyze the success of projects or their losses and make essential decisions in the future.
- KEY STRATEGIC DECISIONS
With all the account reports and analysis, the company gets a complete outlook. They have all the necessary information to make strategic decisions. These decisions include dropping or continuation of projects, target niche, market, etc. Decisions about the capital division in the company and investment policy implementations. The finance department, hence, plays a role in all of these strategic decisions. Financial management ensures that the company’s money gets utilized in the best way possible.
The importance of financial management is immense in a corporation. The monetary policy of the corporation is responsible for the existence and success of a company. So any company that has to ensure success must choose the best individuals suited for this critical job. These financial managers must have all that it takes to uphold such a huge responsibility. Only then, your corporation can operate seamlessly.