The finance department in a business or institution is a division responsible for handling money on its behalf. Depending on the type of company, the role of a finance department will vary. Apart from controlling the expenditure and income, the finance department ensures that transactions associated with the organization’s daily operations run smoothly without disruptions
In a business, the financial department oversees the disbursement of salaries, clearing of supplier invoices, payment of utility bills, and other running expenses. Apart from all this, the department is required to perform a detailed analysis of the company’s financial situation and develop a business model profit plan. The plan will include everything from controlling costs to seeking out credit lines, and new investment strategies to improve the financial situation of the business continually.
The typical finance department handles two aspects of a business—its past and future. The accounting section takes care of what happened in the past, with responsibilities including:
- Bookkeeping, payables, and receivables—Keeps track of day-to-day transactions of the business.
- Financial reporting—This section translates all of the accounting entries from the bookkeeping section into financial statements that can be analyzed and shared.
- Taxes and compliance—Every business has to deal with taxes. This involves a great deal of form filling and calculating. The tax and compliance section makes use of information from the bookkeeping section and financial statements to fill out necessary forms and file the tax on time.
The “future” section would be called something like “strategic finance.” Generally, this section utilizes data obtained from accounting as a reference point to chart out a viable strategy for the company. The subdivisions of this section include:
- Financial planning and analysis—This section presents strategic and financial plans to predict how financial results would play out over a timespan on a regular basis. When the actual sales and expenses reports are available, a comparison is made to determine which areas of the business could be improved or changed so the company’s goals are met. This is generally termed as variance analysis. Over time, updating these reports helps in a better understanding of how various scenarios, such as losing a major client, would play out, and how it would affect the company.
- Treasury and working capital management—The main priority of this module is to ensure that the business has working capital or liquid cash to run daily operations. Apart from projecting the company’s future working capital requirements, the section needs to make sure that any surplus cash is invested in the short term to yield some kind of interest.
- Corporate development and corporate strategy—This division is responsible for arranging and analyzing mergers or acquisition deals, and maximizing possibilities for debt and equity financing. Their input is taken in scenarios whereby the business owner needs to make highly strategic decisions, such as testing out a new market or product.
Finance Department Structure in a Small Business
For a small business, the key roles in a finance department are the following:
Bookkeeper—In the case of small businesses, this is usually one of the most crucial recruitment decisions as the role involves daily accounting procedures. This individual would be required to record and monitor the company’s day-to-day transactions, including accounts payable, accounts receivable, salaries or payroll, and daily cash flow.
Billing—The role is crucial for businesses which deal with a steady stream of billing such as a law firm where clients are charged by the hour. They ensure that all clients are billed accurately and should be answerable to clients with regard to billing queries.
Payroll—This function involves the preparation and maintenance of all kinds of payroll records and reports. The individual hired for this role needs to be aware of regulations associated with benefits and payroll. There are two certifications for this role: the fundamental payroll certification, which is for entry-level recruitment, and the certified payroll professional, which is an advanced certification obtained after certain working experience. The certification also requires the individual to have a thorough knowledge of paycheck calculations, payroll administration, associated payroll systems, along with related legislation and regulations.
Using a bookkeeper or an in-house accountant for tax preparation is commonly practiced in small businesses. Some small businesses also make use of external accountants at the time of tax filing. The choice must be made based on what works best for the specific business.
READ MORE : How to Stand Out to Small Business Investors
Finance Department Structure in Banks
The key roles designated to the finance department are:
- Preparation of financial reports that provide details about the overall performance of the bank for the upper management to evaluate. The same reports are also accessible to regulators, investors, and tax authorities.
- Conduct internal audits on a regular basis.
- Managing the bank’s liabilities, seeking credit options, being directly involved with the issuing of bonds, and associated tasks.
- There also is the additional responsibility of valuing trading portfolios. Valuations of the finance department would be independent of the valuation conducted by the bank’s trading departments.
What Is the Organizational Structure of Banks?
Banks in general follow a typical hierarchical structure, wherein there is a chief executive officer (CEO) at the top heading all operations of the bank, and other managers designated under various key roles who support the CEO.
Apart from this, there would be a board of directors that plays a key role in deciding operation strategies for the bank and maintaining the best interests of the shareholders.
In the case of investment banks, the CEO is often in collaboration with almost equally designated managers, such as the CFO chief financial officer (CFO) and several managing directors who work in tandem to strategize and execute plans per suggestions from the board of directors.
Other designations in an investment bank come under divisions such as risk compliance or trading and investment banking. There are also front office personnel who are required to interact directly with customers to execute their tasks. These sections include wealth management, investment banking services, and financial securities trading.
Back-office personnel provide support to front-office personnel. Apart from that, they work in tandem with risk management and are responsible for the smooth running of the bank’s internal operations such as personnel management and accounting.
The hierarchy structure of retail banks is comparatively less complex. The top executives working under the CEO would include a retail banking head along with a branch network lead professional. Typically, a dedicated manager is designated for electronic transactions, while the customer service initiative section is involved in marketing operations.