Financial management’s role in business

By Andrew Hicks, Chief Financial Officer

Like the frantically paddling feet of a swan gliding serenely across the water, your business’s finance team is a part of the organisation that remains hidden to onlookers but is absolutely essential in making things happen.

Although it’s a back-office function that doesn’t appear on the shelves or in your marketing literature – it plays a crucial role. Poor financial management can quickly lead to business failure.

In brief, a financial team’s role covers a range of duties including:

  • Maintaining key business operations
  • Payroll and tax management
  • Forecasting and cashflow planning
  • Steering business culture and strategy
  • Compliance and financial governance
  • Proactive investment and risk management
  • Training and development

A good finance team will play an active part helping the business to flourish. Whether it is chasing debts, keeping an eye open for the next crisis, steering business strategy or making sure there is enough cash to pay the wages.

Supporting day-to-day operations

Collecting payments, paying suppliers, staying on top of balance sheets and carrying out record-keeping are among the basic tasks of a finance team. These are the day-to-day nuts and bolts that keep the business operating.

Put simply, the finance team manages all the money, and financial management involves keeping this wheel turning. If it stopped turning, the whole business would come to a screeching halt.

Payroll and taxes

If the finance team is responsible for payroll functions, it can be one of the most critical things that it deals with.

If you don’t pay your employees, you won’t have a workforce and that’s the end of your business.

Meanwhile, if you don’t pay your taxes, the government will come after you and that could also be the end of your business.

Neither payroll obligations nor tax bills should be unexpected, and the finance team will factor these into your day-to-day operations.

Cash is king

Many businesses – particularly early on – lose money at some point. Virtually all businesses have to borrow money. There are always going to be good days and bad days, successful times and disappointing times. That’s the nature of business cycles.

But good financial management will factor this into the long-term forecasts. The basics will need to be adhered to regardless of the wider business landscape. Salaries will have to be paid and invoices from suppliers will have to be honoured.

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Having sufficient cash on hand to meet these commitments must not be dependent on the short-term ups and downs of the business’s operations. There needs to be enough spare capacity, which is where proper cashflow management comes in.

It is one of the most critical roles of a finance team. It doesn’t matter how well the business’s products or services are doing – if there’s no cash in the bank, the organisation could topple over.

Understanding the business

It’s important for the Finance Director to be fully invested in all aspects of the business. Without understanding the medium and long-term goals of the owner or board, his or her finance team can’t plan accordingly.

Financial management should include being deeply invested in the long-term strategy and culture of the business.

It works on the other side of the equation, too. If the business wants to carry out acquisitions, expand or go on a recruitment drive, you need to have a handle on the financial implications and whether there’s enough financial capacity to achieve these aims. Having a strong relationship with the Finance Director will help with that.

It’s also a good idea to build strong relationships across departments. If the whole company pulls together – both customer-facing and back-office teams – there’s more chance of shared success.

Financial compliance

This is another crucial area in which the finance team plays a large role.

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 force all the time as regulators look to crack down on  criminal activities. You need to be on top of these rules. And remember that if you start doing business in other jurisdictions, you’ll have to understand and abide by the rules there, too.

It’s also the finance team’s job to be fully versed in current tax law.

Making the money work harder

It’s about more than just adding up the numbers, though. A finance chief needs to be proactive rather than passive, and make the business’s money work harder. This includes shopping around for more competitive banking opportunities (whether for better returns on deposits or cheaper borrowing), keeping a tight rein on debtors, reducing costs and so on.

Getting ready for that rainy day

Some crises are self-inflicted, but others come out of the blue. The economic crash of 2008 and the 2020 Covid-19 pandemic were 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 that the provisions the business has made will be sufficient, it’s vital that your financial management team takes into account the possibility of a sudden jolt to the system. Are there sufficient cash reserves? Are there adequate banking facilities available? Is there flexibility in your debt obligations?

A good financial management team will regularly stress-test the business and make plans to cope with downturns, recessions and depressions. It will continually look at possible risks and draw up mitigation plans.

And it’s a good idea for the team to keep up-to-speed with practices within the wider industry. Spotting trends before they have a negative impact on your organisation can be very helpful (as can be noticing a gap in the market where you might have an opportunity to make an investment).

Training and skills

A forward-thinking Finance Director encourages members of his or her team to keep learning, gain further qualifications, broaden their skill-sets and look to progress within the business.

As well as keeping the whole team fresh and challenged, they will gain a wider view of the business and be able to add increasing amounts of value.

Like what you’ve seen? Read more financial management guidance, blogs and insights.