The Role of the Finance

Department
Higher Grade Business Management
2009

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.
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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.
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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.
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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.

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.
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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.

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.
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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.
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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

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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 organisations
activities.
Under the Companies Acts of 1985 and 1989, it is an
offence for limited companies not to maintain
proper financial records.
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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 businesss assets?

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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?
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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.
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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.

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The Main Financial Statements

The Balance Sheet
The Trading Profit & Loss Account
The Cash Flow Statement

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The Role of Finance

Payment of
Wages and Salaries

Payment of
Invoices

Production of
Internal Financial
Information (e.g. budgets)

Production of
Organisations
Annual Accounts

Analysis of
Financial Information
(e.g. ratio analysis)
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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.
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Task
Read pages 176-178 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.
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