The Role of the Finance Department

The Finance Department really has two fairly distinct jobs toper form in most companies: managing the company’s financial resources (“Finance”) and recording and reporting all its financial transactions (“Accounting”). Many of today’s mid-sized and smaller companies don’t establish separate Finance and Accounting departments within their organizations. A company might instead have a chief financial officer who per-forms or oversees the finance functions for the company and oversees the company’s accounting activities. Larger companies will usually be fairly precise about their organization and are likely to have distinctly separate departments reporting to the CFO.

Finance

The Finance Department can be an accumulation of diverse functions, depending on the company. It may oversee such areas as insurance and risk management, contract administration and pricing, internal auditing, investor relations, and more. But at a minimum, Finance will likely be responsible for treasury activities, often under an executive carrying the title of treasurer or vice president for finance. His or her role will likely include cash management, bank relations, investments, and everything having to do with making sure the organization has enough cash to do its job and has all its cash busily working or productively invested.

Major activities like mergers and acquisitions, attracting investors to a company seeking outside capital, and internal management of public stock offerings—all traditional roles of Finance—will usually fall within the Finance Department’s responsibility. A company that decides to take its stock to the public marketplace for the first time—in an initial public offering(IPO)—will almost always place the coordination role for that transaction in the hands of the Finance Department.

Accounting

The accounting job is typically done by the Accounting Department, led by an accounting manager, controller, comptroller, or similar title. These folks record all the transactions that occur as the company does its business and then prepare reports that help them, company management, and outside constituencies understand the financial impact of those transactions.

 The accountants maintain the accounting software, process all the paperwork that documents transactions that have occurred, and record them into the company’s general ledger. Most of these transactions are recorded in dollars and cents, or the appropriate foreign currency for operations outside the U.S. Some transactions keep track of other units of measure besides currency, such as the number of pieces of inventory in the ware-house, the number of vehicles in the company fleet, and so on.

 Of course, keeping records of financial transactions tucked away in some computer serves no one unless we can get access to the information when we need it. So, from all those transaction records the accountants are able to prepare a variety of reports. Some are for people outside your company, like the government, your bankers, investors, and stockholders. But most important to running the company are the reports the account-ants prepare for company managers, for it is those reports that managers use to understand their company’s financial past and make decisions about its financial future.

As you will learn later in this book, or as you may already have discovered the hard way, the readability of those reports is a huge factor in their value. Put another way, it’s hard to use are port you can’t understand, no matter how valuable the information it contains. That, unfortunately, is the way some managers view the basic financial reports their companies’ computerized accounting programs typically produce. (We’ll discuss these reports in depth in Chapters 3 and 4.) Managers often have good reason to feel that way, it seems to me, because these basic financial reports were designed primarily for use by outsiders! Their purpose is to give a snapshot of a company’s financial condition to people outside the company—bankers, government regulators, stock analysts, investors, and others who have no direct role in running the company. While that may be true, these reports still provide an essential summary of the company’s monthly or quarterly operations in a standard format that is consistent and familiar, thus making them more credible and useful. They also serve as the basis for more tailored and typically more useful reports, which we’ll discuss later on in this book.