The purpose of the finance function
There are two main purposes 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
Smaller businesses do not usually have the resources to support a separate finance function. However, larger businesses can afford to employ specialists to oversee how the business spends its money and controls its finances.
The environment in which businesses operate can change quickly. The finance function monitors changes happening internally, within the business, and externally, outside the business. It then observes the impact of these changes on the finances of the business.
Providing financial information
One of the most important roles of the finance function is to ensure that all financial records are accurate and kept up to date. If managers use information which is not accurate and up to date, they may make poor decisions.
The range of financial information can be vast, especially in larger businesses. However, the most common forms are:
- costs – knowing how much the business pays its suppliers, and whether these costs are being controlled, helps a business to make a profit
- revenue – knowing how much money the business is generating, and whether this is increasing or decreasing, is important in decision-making
- cash flow – monitoring and forecasting the amount of cash in the business is vital to ensure it does not run out of money
- break-even point – knowing the point at which a business starts to make a profit can influence a number of business decisions
- profit and loss – knowing whether the business is making a profit or loss is vital when making business decisions
- business performance – measuring the performance of a business can inform future decisions about where improvements are required