1 the role of the finance department higher grade business management 2009
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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.