Working Effectively in Accounts and Finance Business Structures & the Finance Role

Aims of the Session Business structures Where you fit in Policies and procedures Finance function within businesses Legal business structures The finance role

Organisational Structures Businesses can be organised in various ways: Tall business will have many layers they can be slow to respond but there may be opportunities for promotion Flat business can be quick to react to things, but there might not be the same opportunities for promotion. What kind of business do you work in, think of examples?

Eglantine Price Makes Bedknobs Areas of a Business Eglantine Price Makes Bedknobs Finance Department Purchases Sales and distribution Main area of business (ie making bedknobs) IT Business have different areas, these can be divided into functions ie HR function, marketing function, they can also be divided into cost/profit/investment centres. What would be a cost centre, what would be a profit centre? What could be an investment centre? Who might be in charge of each Department? HR Function Marketing Development

Sales and distribution Eglantine Price Finance Department Cost Centre Purchases Cost Centre Sales and distribution Cost Centre Main area of business (ie making bedknobs) Profit Centre IT Cost Centre Depends on what happens within the business, marketing might be an investment centre, Cost centre doesn’t generate any income. A profit centre is an area that costs and revenues can be attributed An investment centre has costs, revenues and assets and that can be measured, similar to a profit centre. Cost centre only has costs attributable to it. Smaller businesses may out source some costs, such as HR, as it’s more cost-effective, especially as some things can be quite complicated and getting it wrong costly. Can be arranged into a hierarchy in some businesses. HR Function Cost Centre Marketing Cost Centre Development Investment Centre

What Kind of Information Might the Different Areas Produce or Need? HR Dept Production Sales Finance Marketing R&D Purchases Pay scales. Staff levels. Overtime rates. Amount of materials used. Labour hours used. Output. Direct costs Variations in sales. Cost of materials. Cost of labour. Overheads Income New products Effectiveness of campaigns. Profit margins required New materials Volume of production From: Internal information. Sales. Internal information From: Purchases Don’t forget that information should be treated as confidential, there is no need for the Sales department to know what the pay of the production team is, nor do they need to know how many sick days were taken by individuals. Push for transparency so close the pay gap.

Overall Business Structure Board of Directors Managing Director Company Secretary Production Sales & Distribution Purchasing HR Finance IT R&D

Each Department May Have Its Own Structure Finance Director Management Accountant Accounts Assistant Financial Accountant Responsible to the MD for all finance function. Management accountant responsible for internal information. Financial accountant responsible for external information. Management accountant might do financial forecasting, analyse costs and revenues to look for savings. Financial accountant would concentrate on tax returns, profit and loss statement, information to outside agencies. Accounts assistants might be responsible for petty cash, checking invoices, issuing invoices, payroll, sales ledger or purchase ledger, cashier function, Internal customers might be HR for payroll information, sales department to inform then of profit margins so they can offer discounts on bulk purchases etc.. External customers will be HMRC, external auditors, Companies House for Ltd companies, But in general even flat businesses will have some form of hierarchy, after all.... Who would report to who... Well depends on business structure, but in general the assistant would report to the line manager, to the manager to the FD to the MD.

Roles Within Departments Subordinate role – work & report to others. Peer roles – working with others. Authority role – who you work for, responsible for those junior to them. Subordinate roles – entry levels, probably all of you. Peer roles – also probably all of you too, work together to achieve goals, might be for a specific project or in general, or could be same level but a different department ie sales ledger clerk, purchases ledger clerk. For example here the Training Officers are peer roles, although we work together as such we do have a common goal. Authority roles – line managers, what you’re aspiring to be. 2013 You’ll probably be asked about reporting lines ie: who does the finance director report to? MD. Who does the payroll line manager report to – Accounts manager, who as does the sales ledger assistant report to – accounts line manager? Try and think in hierarchical terms to determine your answer, not easiest sometimes as the answer doesn’t reflect real life.

There always needs to be a boss, even in flat structure.

Types of ‘Customers’ Bank Customers Suppliers External auditors Internal Bank Customers Suppliers External auditors Finance companies The public Other businesses Shareholders Different departments Management Employees Will require different information and possibly presented in different ways Stakeholders - people or agencies who have an interest in the business,

Things That Will Effect A Business Solvency Policies and procedures Legal requirements

Solvency The ability of a business to be able to pay its debts when due. Also known as liquidity. Working capital. What can help this? Why do businesses need to be solvent? What jobs that you might carry out will help this? Can you charge interest on late payment? Offering prompt payment discounts, giving achievable terms, accepting achievable terms from suppliers. What is working capital – ready cash + debtors + money realisable needs to be greater than liabilities Bank reconciliations Reconciling ledgers to accounts Ensuring there are systems in place if customers default on their debts. Sending out customer statements Cashing cheques promptly Monthly trial balances Authorisation of ordering stock & supplies, inventory holding – just in time versus minimum & maximum inventory holding Checking supplier invoices and prioritising payments. Yes

Policies and Procedures Legal Internal Health & safety Minimum wages Drivers hours Annual appraisals Tax returns Money laundering & bribes 2010 Equality Act Trading when bankrupt Reports to Companies House Document retention Sick and holiday pay Maternity and paternity pay Drink driving laws Recycling Petty cash Car parking Format of annual report Management reports Grievance procedures Safeguarding procedures Financial irregularities Using fair trade coffee Ethical working practices Cheque signing/paying invoices Employee code of conduct Some companies will try to circumvent the law when it comes to pay, health and safety and treatment of employees, ie Sports Direct and recently Monsoon not paying minimum wage, How long do financial documents need to be retained for? 6 Years + current year. What are the protected characteristics in the 2010 equality act? Age Disability Gender reassignment Marriage or civil partnership Race Religion or belief Gender Sexual orientation

What policies and procedures will affect the finance department? H&S at work Grievance procedures Paper recycling Cheque signing Car parking rules

Businesses as Entities The owner of the business and the business are considered as separate. Main links are drawings and capital. Limited companies Other Organisations/Sole Traders Limited Companies Complete Accurate Up to date Accessible Records of income and expenditure & a description of them. Records of assets & liabilities Records of inventory Records of cash flow Limited companies aren’t covered until L4, but they have a slightly different set up to sole traders and different legal requirements.

Financial Statements Produced Statement of profit or loss Shows the revenue (income) and expenses to a business. Statement of financial position Shows what the business is worth, assets and liabilities Statement of cash flows Records the amount of cash and cash equivalents leaving a business, split into operating, investing and financing activities.

Changes in Legal Requirements Increases in minimum wage. Change in reporting standards. Change in other legislation such pensions. Non-financial requirements that may have a cost implication: Environmental changes Parental and maternity leave Changes in health & safety legislation.

The Finance Role Is integral to the smooth running of any business. Can be financial and management accounting. Includes payroll function. All businesses need to know their financial position and must comply with various legislation. Business might also want to have internal management reports to help control costs, monitor expenditure and forecast future requirements maybe purchases, production, .

Financial v Management Accounting Retrospective. Timely, current. Statement of profit or loss/financial position (balance sheet). Management reports. External users. Internal users. Legal requirement. For company use. True and fair view Useful information Timing – yearly for reporting purposes Promptly when business requires Purpose – assesses financial performance. Purpose – assists in decision making, planning and control Financial accounting meets IASs and records transactions between businesses, customers, suppliers employees and owners. Management accounting determines and analyses costs within a business, will identify wasteful practices, unprofitable activities, analyse profit, value inventory, develop budgets key in managerial planning and control.

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