Nothing is more vital than finances when it comes to managing a business and ensuring its long-term survival. No matter how well-established your business is or how many significant investors and stakeholders it has if your company doesn’t monitor its transactions closely, you’ll end up bankrupt before you know it.
A recent study has proven that poor financial management is the second most common reason startups fail. Many entrepreneurs underestimate the monetary investment needed to set up a base and keep it running. According to William D King, ensuring business growth and sustenance is closely tied to financial planning.
The Role of the Finance Department
The unit of an organization primarily tasked with the management of all money-related issues is the finance department. Their goal is to ensure smooth and effective business operations by closely controlling the monthly budget, income, and expenditure. They are tasked with ensuring that the cash out-flow never exceeds the cash in-flow and that the company’s financial reserves remain full for survival during tough times.
Reasons Why William D King Emphasizes the Importance of the Finance Department
Guide the Management
The finance department must work in close contact with the company’s leadership and administration, guiding them through the financial impact of various vital decisions. They assist project managers by providing them with detailed insights and feasibility reports on how they should proceed with the assignment.
When the company plans to launch a new product or service, the finance team must do a detailed study of the market and economic trends to support the management and provide them with pertinent financial advice. They set out a budget for the assignment, relay a funding plan, reach out to investors and develop fallback measures just in case.
Bookkeeping
Another primary but essential function of the finance department is bookkeeping –recording, analyzing, and interpreting a company’s transactions by keeping detailed records of everyday expenses. They must maintain strict tabs on all monetary movement, including inventory purchases, vendor payments, and daily sales and profits.
Maintaining an updated book is also necessary as the finance team is tasked with managing and paying taxes. The team must develop a respectful relationship with relevant government authorities by ensuring that tariffs are implemented within the framed policies. If the bookkeeper doesn’t manage records right from the beginning of the business year, collecting and sorting information would become challenging and increase room for errors
Budgeting
The finance team must set out a budget for each department and ongoing projects, providing timely delivery of provisions and ensuring no area of the company exceeds their designated allowance. They must also ensure that a business is fully equipped to remain afloat even during tough times. To do so, they must plan and identify, appraise and outline risk mitigation measures for the organization. To protect the firm from any drastic losses in the future, they work to establish risk control programs and predict the future market and economic patterns. They communicate any significant changes in industrial activities and the effects of inflation or recession to the company leaders, helping them make informed decisions.
The Bottom Line
William D King believes that a company becomes vulnerable to multiple risks without a proper finance department. Such a firm lacks adequate planning and isn’t prepared to handle any sudden changes within the market. Further, the organization’s transactions are messy, unplanned, and erratic, which only hinders the progress of the business.