People often wonder about the role of the finance department in an organization – although the name suggests it’s all about money, but there’s so much more to it. Why? The larger the organization, the more defined the role of a finance department managed by CFOs. However, in the case of start-ups, the financial league is structured to help the company make quick business decisions and streamline its work more profitably.
Although the management and accounting of the company’s money is paramount, it also covers a wide range of activities to ensure the financial stability of the entire system. An effective financial service can only be established through careful analysis of the best course for its operation, which also includes the practical implications of the plan. Here are some essential tasks that fall to the finance department.
Strategy development
Strategy development is one of the main functions of this department and is generally considered to improve the performance of the organization. Today, the availability of sophisticated tools to collect data has made it much easier to set realistic long-term goals with a refined strategy. Sometimes this can entail cutting back on spending or buying in bulk to get valuable deals to achieve a certain goal. Every purchase made should have a long-term goal in mind, as actions taken to amplify short-term goals can impact long-term goals. For example, reducing the research and development budget can have a negative impact on business growth. Therefore, developing a strategy in the right direction must be carried out responsibly by the authorities concerned.
Account bookkeeping
Bookkeeping maintains basic records of every financial transaction; no matter how big – if it’s part of the business, it needs to be on the books. These transactions include purchases, invoices, sales, and payments made by an individual, supplier, or company associated with the business. Finance teams are responsible for ensuring that all bookkeeping is done correctly and that there are sufficient supporting documents to certify each entry. In start-ups, the finance department is also responsible for managing cash, payables/receivables and salary disbursements. In larger companies, the scenario may be different as different teams may handle these functions and they may or may not be directly associated with the finance department.
Data analysis
The work of a finance department is not limited to simple record keeping. At any time, they usually have access to a large number of data files with a good understanding of the data as well. Someone working in this department should be qualified to analyze the data and provide a conclusion on what the numbers indicate. These analyzes are very useful before making an important business decision; they also give a fair idea of understanding budget needs before starting a new project. The department is still able to analyze effectiveness, assess risks and take a position on forward-looking decisions made by senior management.
Capital budgeting
People often think that strategy and budgeting are the same things, which is not entirely true. This is the function responsible for selecting among the various uses of available capital. After all, most established start-ups will have spare cash that they’ve raised through various rounds of funding to invest in the business, with the goal of increasing sales or reducing expenses. However, the capital expenditure opportunity usually exceeds the available amount that can be spent. Therefore, capital budgeting creates fictitious cases to identify the effectiveness of new projects to be initiated or completed. An enhanced capital budgeting feature can not only help forecast benefits, but also track those benefits over time to assess whether the capital investment has been as successful as expected.
Tax and Compliance
Running a start-up or a multinational means paying taxes according to the law, and doing the same requires a lot of calculations. Using the financial statements as a basis, along with other multiple information tools created by accounting, the finance department must ensure that all government documents and forms are sent complete, correct, and on time to the finance department. ‘income tax. A well-structured compliance and tax operation should go beyond normal compliance and attempt to find ways to minimize tax wherever possible, in order to increase the net income of the business.
By: Manoj Sharma – Co-Founder and Head of Finance, Policybazaar.com
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