You are aware about organizing the activities of an organization as well as organizing the activities within a function. Since Finance function is very vital for every type of organization, it is necessary to set up a sound and efficient organization. The organization varies depending upon the nature, size of the organization, though we cannot have a standard organization for all the enterprises, we can structure the basic aspects for a corporate as below:
Share holders determine the following while approving the Articles of Association and the bye –laws:
- The amount and kind of capital
- Rules governing issue and transfer of stock
- Powers of directors to declare a dividend, choose a bank, create reserves
- Sale of firm’s assets
- Plans for reorganization, liquidation, consolidation and mergers etc.
The board of directors of a limited company includes a managing director (or CEO – chief executive officer), and a number of functional executive directors and may include one or more professionally qualified accountants, one of which may be the finance director. The directors of the company necessarily delegate to middle managers and junior managers the responsibility for the day-to-day management of the business. It is certainly likely that this body of managers, who report to the board of directors, will include a further one or more qualified accountants responsible for managing the finance function.
The traditional structure of the finance function in a medium to large sized company (see Figure) splits responsibilities broadly between accounting and finance, both being the responsibility of the finance director (or CFO – chief financial officer). Accounting is managed by the financial controller (or chief accountant), and cash and corporate finance may be managed by a corporate treasurer (or financial manager), and they both report to the finance director. Historically, the IT function (information technology or data processing) has also been the responsibility of the finance director in the majority of companies. This is because the accounting function was the first major user of computers for payroll and then accounting ledgers, financial reporting, budgeting, financial information, etc.
Board of Directors approve the financial policy, declare dividends and translate the aspiration of shareholders into specific goals and objectives and select & appoint the senior officers.
The Controller is concerned primarily with the Planning, Accounting and Control activities. The Treasurer is responsible mainly for financing, management of cash & receivables and investment activities.
The organization of financial function depends on the needs of each organization. The financial needs of each organization vary from the other. In some organization working capital requirements may be more, as in the case of manufacturing organizations as compared to service organizations. In some organization the gestation period may be longer before they start generating revenues and earn profits.
FAQs
CH 7 The organization of the finance function refers to how a company structures its financial operations, including the roles, responsibilities, processes, and systems involved in managing financial resources.
How do you Organise a finance function? ›
There are eight core steps to take in your approach to structuring your finance team:
- Assess the current finance team's capabilities. ...
- Assess the finance processes. ...
- Evaluate different finance function models. ...
- Define your outsourcing strategy. ...
- Define your finance team's organisational structure. ...
- Roles and responsibilities.
The Finance function involves planning for, obtaining, and managing a company's funds. Finance managers plan for both short-term and long-term financial capital needs and analyze the impact that borrowing will have on the financial well-being of the business.
What makes a successful finance function? ›
Finance functions are responsible for measuring and recording company performance; analyzing past results, while forecasting opportunities and measuring risks; providing actionable insight to inform and drive business outcomes.
What are the 4 finance functions? ›
Finance functions cover Investment (allocating funds to assets for growth), Dividend (deciding on profit distribution to shareholders), Financing (raising capital through equity or debt), and Liquidity (ensuring sufficient cash flow for operations).
What is the main focus of the finance function? ›
The purpose of the finance function
to provide the financial information that other business functions require to operate effectively and efficiently. to support business planning and decision-making.
How do you organize finance? ›
Five Ways to Organize Your Finances
- Create a budget. Take a serious look at where your money goes. ...
- Track your spending. One of the easiest ways to keep your finances organized is to track your spending. ...
- Pay bills on time to avoid late fees. ...
- Keep joint accounts balanced. ...
- Set a savings goal.
What is a finance department? A finance department is the part of an organization responsible for managing all financial processes and decisions. It controls income and expenditure while also ensuring effective business running with minimum disruptions.
What are the four main tasks of the financial function are to manage and plan? ›
These four elements are planning, controlling, organising & directing, and decision making.
How does the finance function relate? ›
Cash Flow Management: The finance function manages the company's cash flow to ensure that there is enough liquidity to cover operating expenses, capital expenditures, and debt repayments. By monitoring cash flow, the finance function can control spending and maintain the financial health of the company.
Functional finance is based on three major beliefs: It is the role of government to stave off inflation and unemployment by controlling consumer spending through the raising and lowering of taxes. The purpose of government borrowing and lending is to control interest rates, investment levels, and inflation.
What is a function in an organization? ›
Business functions are the high-level groupings of a company's capabilities and processes that describe its work. Business functions ensure an organization runs properly and does well for its customers, employees, leaders and shareholders. A company can have one primary business function or may have several.
What is the vision of the finance function? ›
The CFO vision is your long-term aspiration for the finance function within an organization. It outlines where you want to take the finance team and how you plan to contribute to the company's success. Your vision plays a key role in shaping financial strategy, as it sets the direction and focus for the team.
How big should a finance function be? ›
For many businesses, the finance function should consume about 1% of revenue. At smaller companies, many finance functions get outsourced at first, perhaps to a part-time bookkeeper or tax specialist, or through a third-party firm that can handle multiple roles.
What is organizational structure in finance? ›
An organizational structure is a system that outlines how certain activities are directed in order to achieve the goals of an organization. These activities can include rules, roles, and responsibilities.
What is finance in an organization? ›
Essentially, finance represents money management and the process of acquiring needed funds. Finance also encompasses the oversight, creation, and study of money, banking, credit, investments, assets, and liabilities that make up financial systems.
What is the organizing function in financial management? ›
Organizing is the process of assembling and assigning the human, financial, physical, informational, and other resources needed to achieve goals (Bateman & Snell, 2013). At this point in the management process, the planning function has been utilized.
What is the main function of a finance company? ›
The finance company's main function is to provide loans to businesses and individuals which they pay back with interest. How do finance companies differ from commercial banks? The biggest difference between the two is that the former do not get deposits, which banks do.
