Finance serves an essential role to any company, because it has to do with a business’s funds. Business finance departments are in charge of monitoring all the financial activities within the company, and act as the floodgates when money comes in and goes out. Since money is the backbone and propeller of business maneuvers, companies would be stagnant without people to manage the business’s finances.
What Is Business Finance?
Finance is the function within a business that is responsible for overseeing acquired funds, managing existing funds and preparing for future expenditures of funds. Financial management abets a company in meeting their strategic and financial objectives. Most companies designate CFOs, or Chief Financial Officers, to spearhead business finance operations, decisions and strategies.
Role in Money Management
One important role of business finance is to identify ways that the company can save on expenses and enhance profitability. By performing financial analyses, business finance executives can look at what makes financial sense, and what doesn’t, to ensure smart money management. Cutting internal costs is something that a business finance department will look at, as well as ways to increase generated revenue.
Role in Financial Planning
Business finance departments create budgets as part of their financial planning strategies. Budgets are usually developed based on a series of financial projections that the company believes it will need in order to operate at full capacity.
There is a lot of work that goes into budgeting and financial planning processes. For instance, there is not only one budget that a company operates off of. Business finance departments generate cash budgets, capital budgets and operating budgets.
Investopedia notes that financial planning is instrumental in maximizing profits and making the best use out of the allowable money that the company has, or is given (through loans).
Role in Financial Forecasting
A business’s success depends largely on the dependability of financial forecasting. Financial forecasting is the prediction of a company’s future financial goals and performance. Business finance is responsible for creating financial forecasts that consider things like sales volume, capital expenses, staffing resources and vendor agreements.
The reason that forecasting is beneficial to business is because it provides executives with a financial framework of what can be expected in the coming years. Such predictions and estimates help managers in determining what their budgets should be, how to allocate funds and where they can cut costs.
Importance of Financial Strategies
The Wall Street Journal explains that CFOs are becoming less interested in the compliance part of business finance, and are growing more involved in strategic planning. Financial strategies, which are founded on a company’s mission statement and objectives, are important to businesses because they give companies a way to reach financial goals. Without strategies, a business would not be able to realize growth opportunities.
- Business Finance Magazine: Upfront: Boards To Play Big-Picture Role: Laurie Brannen: June 2005.
- EY: The Changing Role of the Financial Controller
- University of Waterloo: Financial Roles & Responsibilities
- The Wall Street Journal: CFOs’ Risk Responsibilities Likely to Expand
- Investopedia: Goals Of Financial Management
- finance image by Christopher Hall from Fotolia.com