Corporate Finance: How They Add Value

What does a finance department do in a business?

In order to achieve this, finance departments carry out key financial processes, from the statutory and compliance for business to more bespoke insightful information and data modelling for organisations strategic vision. These include:

• Setting up business bank accounts
• Creating budgets
• Establishing accounting systems
• Reviewing accounts
• Procedures for providing credit and collecting debts
• Employee payment and expenses systems
• Online store payment functionality

Read more in our financial processes blog.

Finance department responsibilities

The 3 key responsibilities of a finance department are:

• Finance controls. Because the finance department is so important to your company’s fiscal health, it is critical to verify accuracy in your work. Finance controls help monitor the accounting process to ensure legal compliance and avoid fraud, and employees follow best working practice requirements. Regular reconciliations should compare the actual financial situation with the written reported data in reports, to ensure consistency.
• Revenue alone rarely sustains a business entirely, so a finance department must plan for time and ensure sufficient cash is saved by the business to allow it to meet its expenses at these times – and minimize any loans, and subsequent interest payments.

• Financial planning. In order to aid this cash flow management, excellent planning is required, to provide budgets that will help pay for new projects by being aware of the right time to invest, and when to reign in to avoid damaging your bottom line. Particularly crucial, as well as when to spend, is when and how to repay any borrowed sums.

Different departments within the finance function

Financial planning and analysis department (FP&A)

An FP&A team, including the Chief Financial Officer (CFO), generally takes up the task of managing an organisation’s cash flow, through budgeting, forecasting and analysis that support major corporate decisions. They oversee a range of a business’ financial affairs, including income, expenses, taxes, capital expenditures, investments, and financial statements.

Importantly, unlike accountancy, which may simply record numbers, FP&A focuses on that ‘A’ for analysis. Financial analysts perform quantitative and qualitative analysis of your organisation’s financial activities, as well as economic and business trends, to try and map out the most successful financial future.

10 key tasks for an FP&A team are:

1. Evaluating whether your organisation’s; current assets and investments are providing the optimal return on investment – and if not, what should be done instead.
2. Overseeing your business’ overall fiscal position
3. Evaluation the most profitable services / products you provide in total (based on volume sold)
4. Further to point 3, looking at the individual products with the highest and lowest profit margin (based on an individual sale)
5. Assessing how cost-efficient other departments are to censure they are providing optimal service to the business.
6. Helping each department prepare its own budget, and consolidating them into the organisation’s overall financial plan. Read our tips on budgeting.
7. Providing high-quality data analysis for leadership teams to allow them to make the best decisions for the business
8. Modelling and forecasting potential operations to plan future strategies
9. Comparing actual results against such forecasts and learning from any differences to improve performance in the future
10. Using this data to highlight the best growth opportunities for the organisation.

In short, an FP&A team should advise executive leadership how to use your business’ financial resources most effectively to increase profitability and growth, while avoiding serious financial risk.

The treasury department

Treasury involves the management of money and financial risks in a business. This department is the key factor in ensuring your business is able to meet its financial obligations, while also helping the business grow through a positive long-term financial strategy.

The size of your treasury function will depend on the size and type of your organisation, and members act as trusted advisers to the business on financial matters, planning how to drive success for performance and profits.

More than anything, it is about risk management – not just when to be cautious, but also spotting right opportunities that merit a slight risk because they present the highest possibility of a positive return on investment to grow the organisation. Every business has to take risks – it is a treasury’s key function to allow them to take the right ones that become successes.

The financial controller

Above all this, there needs to be someone making a final check – and this is where the role of financial controller comes in. They oversee all accounting to ensure ledgers accurately reflect the income and expenses of an organisation, money coming in and out of the company: essentially, they are a company’s lead accountant but with a strategic view, holding accountability for an organisation’s fiscal and regulatory compliance.

Perhaps the easiest way to define is to look at the difference between pure accounting and controlling:

• Accounting is recording money coming both in and out of the business. The key is to record these figures as accurately and efficiently as possible.
• Controlling focuses more on timeliness of delivery and that the data is recorded within the rule of the organisation, to ensure that any discrepancies are spotted and followed up and corrected as quickly as possible.

The best financial controllership thus encompass
es accounting, finance strategy, and leadership, ensuring all financial details are correct but also looking at how to help a company improve.

How does finance add value?

Perhaps the most important thing is to alter perception so that your advice is heard and followed by key leaders. For accountants in particular, the image can be of a cost centre, looking to eliminate risk and always save rather than even spend wisely to gain Return on Investment.

The right financial leadership can dispel this view. By highlighting the ways to optimise your organisation, you can reduce overheads, increase profit margins and free up cash for growth. This shows you to be a value centre for the business.

The good news is that you already have the ability to do this. As a finance department you are already at the centre of customer data, particularly purchasing information and preferences, as well as how other teams utilise their budgets. These are hugely valuable business insights that can help transform sales, marketing, operations and supply chain performance. Further, the data and knowledge you have allows you to do this on a macro scale, and when combined these 1% changes can make a big difference.

Finance value and strategic planning

Above all, finance departments must align daily financial decisions with company objectives. Long-term, medium-term and short-term goals should form part of a broader vision of company success, including the financial necessities.

Your fiscal activity will be better placed to achieve these goals if they are shared and accepted across the organisation, and the finance department has the tools to manage the financial transactions necessary to implement it.

For more tips, read our blog on ‘How to build a finance function you can be proud of’.

The tools necessary to add finance value

To ensure you can deliver this value, you must have not only your processes in palace, but also your technology. In many cases spreadsheets, still reliant as they are on human data input, will not be up to the task – besides the extra time this takes. You need your people’s valuable times spent analysis the data, not inputting it – this process should be automated wherever possible

Read how to ensure you have the optimal finance technology.