1 The Role of the Finance Department Higher Grade Business Management 2009

2 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.

3 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.

4 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.

5 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.

6 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.

7 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.

8 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.

9 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.

10 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

11 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.

12 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?

13 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?

14 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.

15 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.

16 The Main Financial Statements The Balance Sheet The Trading Profit & Loss Account The Cash Flow Statement

17 The Role of Finance Payment of Wages and Salaries Production of Internal Financial Information (e.g. budgets) Production of Organisation’s Annual Accounts Payment of Invoices Analysis of Financial Information (e.g. ratio analysis)

18 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.

19 Task Read pages 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.