It is difficult to assess a business without considering its financial aspect. Indeed, it evolves in a financial space that obliges it to function, taking into account certain financial needs and under certain financial constraints.
The company of tomorrow that wants to be competitive must develop a solid and efficient internal finance function to ensure its sustainability. What role will it play on a daily basis? Who are the different stakeholders? Are there interactions with other business functions?
Role of the finance function in the company
The “finance” function makes it possible to assure decision-makers that they will have the necessary funds at the moment T to finance such or such activity.
It is, therefore, their responsibility to give the company the opportunity and the means to develop. It also guarantees that the capital of the company is well invested profitably.
Before making any decision that involves a financial flow or a hole in the cash flow, a manager or decision-maker should consult the finance function of the company. It implies that the tools implemented are in line with the activity.
The financial function in the company places great importance on risk management. Indeed, it is imperative to limit the financial risks that could harm the business.
The financial function is also interested in the legal aspect by ensuring that the company respects the authorization procedures.
The financial ratios established by the finance department of the company offer a diagnosis on their performance, which allows them to know its financing capacities and to plan any development strategy.
Accurate financial information
Following good financial management, the company’s dashboards and financial indicators must provide up-to-date and relevant information to business leaders.
But it should not be thought that the information in possession of financial management is only of the order of the “financier.” It offers a real dashboard to managers who must justify their expenses by giving them a tool and results showing the profitability they have ensured.
The challenges of a finance function are, therefore, very important. As a fundamental decision-making tool, the finance function will allow managers to plan their development strategies while ensuring their financing capacity.
Once different strategies have been put in place, it is possible to have visibility on the profitability of each action and to know which investment choice will have been the most judicious.
What would summary good financial management?
A business’s financial goal is not just about turnover, and it would be a big mistake to confuse turnover with real profit. Financial management must be guided by three criteria which are necessary for the proper functioning of the business:
It is clear that to grow, a business must be profitable. But what we often forget is that to develop, you need investors who are only interested in profitability.
Two crucial points for the development of the business. After finding capital (and therefore proving its profitability), the company needs loans. It will be almost impossible to benefit from it if the business is not solvent. No bank commits as a partner if it knows in advance that it runs a great risk of never seeing the color of its money again.
Did you know that a considerable number of companies are in receivership due to a cash flow problem. When the disbursements exceed the receipts, the whole company is destabilized.
The corporate finance function oversees all activities and must provide all decision-makers with a reliable response element to help them in their decision-making.
Whatever its size, a business cannot be sustainable without having perfect visibility of its key financial positions.