The finance function is often a hidden or overlooked department, quietly ticking away in the background of a business’s larger operation. But it is arguably the core engine of any company, as without it nothing would get done.
If employees weren’t paid, then they wouldn’t fulfil their roles. And if financial performance wasn’t good, there would be no money to fund raw materials, technology, energy bills, rent, office supplies, and other necessary investments.
This is why effective financial management is so essential. If this isn’t done properly, all the other elements of the business could quickly grind to a halt.
8 roles and responsibilities of financial management
Many businesses fail due to inadequate financial management. It’s essential to understand and fulfil the following roles if success is to be achieved:
- Supporting day-to-day business operations
- Payroll and tax management
- Keeping cash in the bank
- Understanding the business and steering business culture
- Financial compliance and governance
- Making the money in the business work harder
- Getting ready for that rainy day
- Financial training and development
A good finance team will play an active part in helping the business to flourish. Whether it’s chasing debts, keeping an eye on the next potential crisis, steering business strategy, or making sure there is enough cash to pay the wages.
Collecting payments, paying suppliers, staying on top of balance sheets, and record-keeping are among the basic tasks for finance teams. These are some of the core mechanisms that keep the business running.
Put simply, the finance team manages all the money, which is the lifeblood of the organisation, essentially keeping the wheel turning.
The payroll function is one of the most critical aspects a finance team deals with. If there’s no way to pay the workforce smoothly or accurately, then eventually they will all leave.
Meanwhile, if taxes aren’t paid correctly, compliantly, or in a timely manner, your business could face significant penalties, which would be hugely detrimental for financial health.
Neither payroll nor tax obligations should be unexpected, as these are foundational activities that will always be on a finance team’s radar. Payroll software can help to guide employees, particularly during a cost-of-living crisis.
Many businesses (especially new ones) lose money at some point. And a lot of companies will have to borrow money to sustain themselves initially. There are always going to be good times and bad times, that’s the nature of business cycles.
But good financial management will factor this in with long-term forecasting. The basics should be adhered to regardless of the wider business landscape. Salaries must always be paid and invoices from suppliers honoured.
Having sufficient cash on hand to meet these commitments shouldn’t be dependent on short-term ups and downs of business. There must always be enough spare capacity, which is where proper cash flow management comes into play.
It is one of the most critical roles of a finance team. Regardless of how many sales are being made, if there’s not enough fluid cash in the bank, the business could cease operating. Cloud automated invoicing can save businesses time and improve cash flow.
It’s important for the Finance Director to be fully invested in every aspect of the business. Without understanding the medium and long-term goals of the CEO, their finance team can’t plan accordingly.
Financial management should include being deeply invested in the ongoing strategy of the company.
It works the other way around too. If the business wants to complete an acquisition, expand, or go on a recruitment drive, you need to understand the financial implications of these and whether there’s enough money in the bank to begin with. A strong relationship between the CEO and CFO is essential for this.
It’s sensible to build strong connections across various departments. If the whole company pulls together, including both customer-facing and back-office teams, there’s more chance of shared success.
There should be strict processes in place to prevent fraud, theft, and money laundering. The larger your organisation, the more complex this can be.
New rules are coming into effect all the time as regulators look to eradicate criminal activity. You need to stay in the loop with these legislations. Also, if you start operating in other countries, you must fully understand their laws too.
Compliance can be improved with Cloud technology, as these systems incorporate legislative changes as part of their ongoing updates.
Finance is more than just number crunching. Finance leaders must be proactive and make the business’s money work harder. This includes shopping around for more competitive banking opportunities (such as better returns on deposits or cheaper borrowing), keeping a tight rein on debtors, and reducing costs where possible.
Some crises are self-inflicted, but others come out of the blue. The 2008 economic crash and the 2020 pandemic are two examples of how a massive global event can have a devastating impact on all sorts of businesses and sectors.
While you can never guarantee the provisions a business has made will be sufficient, it’s vital your finance team are prepared for an unexpected or sudden jolt to proceedings. Are there sufficient cash reserves? Are there adequate banking facilities available? Is there flexibility in your debt obligations?
Good financial management will include regular risk assessments and safeguards for coping with economic downturns and recessions. Plans should be drawn up to mitigate any risks that are identified.
It’s also a good idea for the finance team to keep up to date with practices in the wider industry. Spotting trends or gaps in the market can be very beneficial as this can lead to profitable investment opportunities.
Forward-thinking Finance Directors will encourage and facilitate their team to learn continuously, gain further qualifications, broaden their skill set, and search for progression opportunities within the business.
This will ensure the team continues to feel fulfilled and challenged in a positive way. They will also be better equipped as a result, contributing in more valuable ways with a wider perspective of the business. Technology can be leveraged to assist with employee training too.
Consequences of poor financial management
Non-existent or ineffective financial management can lead to serious negative outcomes for businesses. For a start, it can lead to missed opportunities in terms of cost-cutting. If spend isn’t being monitored meticulously, it could see costs spiral out of control, or unnecessary spending going on for long stretches of time.
Mismanagement in the finance team often goes hand in hand with inefficient processes, which leads to a lot of wasted time and energy for all involved.
If there’s no awareness around financial performance, it’s more likely that dangers lurking around the corner will remain undetected. And improvements can’t be made, as there’s no visibility of poor-performing areas.
A lack of financial management will see the company’s most valuable resource ignored, data. Financial data analysis is essential for making informed business decisions and driving key strategic manoeuvres. Without this, best-guesses are the only option, which could lead to a disastrous wrong turn.
Then there’s also the threat of talent loss. Employees today want to make meaningful contributions. They expect to be given the technology and structures needed to succeed, while also being part of an innovative, efficient, and flexible working environment. If talented employees are exposed to poor financial management processes, they are more likely to go elsewhere to find what they’re looking for.
How Cloud technology can aid financial management
While the culture, people, processes, and leadership can have a big bearing on financial management, one of the quickest (and most effective) ways to boost this obligation is to utilise the help of technology. A single digital space for all actions to be completed (and all numerical data to be stored) facilitates transparency and accountability.
In the modern era, Cloud-based accounting solutions have become a must for finance teams and managers alike. With the rise of hybrid working, finance professionals need a way to access their work from home, which is exactly what the Cloud offers. It also means transactional updates can be made instantly from remote locations, so that data is always current.
Choosing the right Cloud technology is just as essential for effective financial management. It’s important to select a system that is scalable and flexible, and one that fits with your business objectives. If you get this choice right, many of the manual financial tasks will become automated, thus boosting efficiency, and reducing the burden of financial management.
Be sure to take a closer look at our Cloud-based accounting software, Advanced Financials, which has built-in dashboards and over 1,000 customisable reports. With such a seamless way to view key metrics, it has never been easier for finance teams to guide key strategic decisions and make an increasingly valuable contribution.