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What’s it: The accounting and finance department is the business function that involves managing the company’s money. It is concerned with planning, managing, and controlling financial resources, including managing records and information related to business finances. In addition, the department is responsible for ensuring effective and efficient financial management to support the company in achieving its goals. This department also performs the necessary financial controls to support all business activities.
What does the accounting and finance department do? Handling payroll, financial reporting, and budgeting are examples. In addition, this department also takes care of accounts receivable and payable, bookkeeping, legal compliance, and financial control.
In a small business, this department may not be a separate area but run in conjunction with other functions. This is because the business does not have the resources to support the function separately.
But, on the other hand, in large businesses, the accounting and finance departments are separate areas. They have sufficient resources and can hire specialists. The team has specific duties and jobs to oversee how the business maximizes and spends its money and takes steps to control its finances.
Two main objectives of the accounting and finance departments
The accounting and finance department plays an important role in a company. Those are key areas besides operations, human resources, and marketing departments. In addition, this department fulfills two main objectives within the company.
First, the department supports business planning and decision-making. For example, management plans expansion by acquiring a company. The finance department people then assess how feasible the acquisition is and how to finance it, whether using internal cash or external sources such as issuing debt securities.
Second, the department provides financial information within the company. Such information may be needed by other departments to operate effectively and efficiently.
The finance function provides and monitors internal processes, such as budget and cost realization. The department also monitors external changes and analyzes their impact on business finances. For example, the finance team evaluates securities investments when the central bank raises interest rates. Thus, cash is invested in the right instruments to meet liquidity while maximizing returns, reducing the opportunity cost of idle funds.
Roles of the accounting and finance departments
The accounting and finance department plays a vital role in a company. Their roles include:
Financial Accounting. This role involves recording all financial transactions, usually through a double-entry bookkeeping system, and preparing financial reports as required by management and external stakeholders.
Budgeting. This department analyzes, allocates, and controls financial information to assist day-to-day operations. At first, the team plans the budget for next year by mapping how much money would come in and how much would be spent. Once implemented, the team monitors and controls the budgeted items.
Payroll. The accounting and finance department prepares and processes salaries paid to employees, records transactions, and makes reports. This role also requires this department to ensure the company’s payroll has complied with applicable rules and policies, both internal and external, such as the government.
Treasury and financial planning. This role relates to how to allocate existing funds within the company. For example, the team manages liquidity and investment, including where the company should place its cash, whether in bank deposits or securities. This role is to optimize returns while meeting liquidity. In addition, the team also monitors the company’s debt and equity to achieve an optimal capital structure.
Taxation. This role relates to preparing and paying taxes. The team is tasked not only with managing and making tax reports. They also identify and record all transactions with tax consequences, which are needed for taxation, decision-making, and financial planning. In addition, the team is responsible for ensuring money is available when needed to pay taxes to the authorities.
How does the accounting and finance department affect the business?
The accounting and finance department ensures all financial records are accurate and up-to-date, reflecting actual conditions. Such information is essential to support quality decisions. Imagine if this department gave the wrong financial information to management; what would happen? Bad decisions would result.
In addition to providing input for management decision-making, this department also cooperates with other departments to support decision-making in related areas. Take the marketing department as an example. The accounting team works closely with the marketing team to set the right price to maximize sales volume and profit.
The marketing team may focus on generating the highest possible sales volume and may, therefore, focus on low prices. Meanwhile, the accounting and finance team brought other information, especially related to costs, including production costs. Then, the two teams formulate prices to meet sales and profits.
In addition to providing information to other departments, the finance function can also impact other areas by advising on various financial matters. For example, the finance department might suggest ways to improve cash flow.
Or, the department provides insight on how to prepare a budget, allocate a budget, and maximize the budget according to the context within each department. Such suggestions are vital for a smooth operation. In the end, it significantly contributes to other departments meeting budgets and business plans.
Support business decisions on other departments
As mentioned, finance and accounting departments provide financial information to make business decisions. The decisions may be related to the organization as a whole or specific to other departments. Examples are:
Corporate action
Management needs relevant information when making decisions about expansion. For example, which is the right choice to grow a business? Should the company acquire, establish a subsidiary, add a new factory, or buy a new machine? Should the company focus on the current market or enter a new market?
Such decisions require input from the finance department. For example, the accounting and finance departments provide information about the financial resources available to support expansion. The department also identifies potential external financing to finance expansion if internal resources are insufficient. Then, the team is tasked with analyzing costs, break-even points, and investment feasibility.
Marketing
For example, the finance department sets a budget for a marketing campaign, as proposed by the marketing department. The finance team also monitors and controls its realization, ensuring the budget is allocated optimally.
Then, post-campaign, the accounting and finance departments provided other valuable information. For example, the department provides sales and profit realized information to review whether the campaign was successful or not?
Human resources
The accounting and finance department provides relevant information to support the human resources department in designing and evaluating related budgets, policies, or strategies. For example, this information may relate to turnover, employee productivity, hiring, and training.
For example, costs in the resource department increase because employee turnover is high. As a result, companies must frequently recruit and train new employees, which is more expensive than retaining existing employees. This cost information will be input for reviewing and revising related policies and strategies to reduce turnover.
Operation
The operations department is responsible for producing products and related areas such as raw material procurement, inbound logistics, and warehousing. To produce goods, they also need labor, machinery, and supporting equipment. It all costs money. The finance department allocates the required money according to the budget proposed by the operations department.
The relationship is also the other way around. I mean, the operations department does need the finance department to fund operations. But conversely, the finance department also depends on the operations department to draft the budget.
For example, designing a budget for the organization as a whole requires revenue and cost assumptions. The finance department also requires assuming production volumes and costs to plan targeted revenues and profits.
Say the production department does its job poorly. As a result, the budget misses the plan. This doesn’t just affect the operations department’s budget; it also impacts all areas within the company. Finally, the finance department must make revisions and control measures to improve the company’s finances.
