As your business grows, you will move from a flat organizational structure, or one where several key managers report directly to you, to a more traditional, or functional structure. A functional structure organizes your business by departments, with finance one of these. Although finance will be only one of your departments, financial management occurs throughout all of your departments to ensure your company’s profitability.
While there are a variety of ways to organize a business, most small businesses use the functional model, creating departments for human resources, marketing, finance, information technology, sales and production. As businesses grow larger, they might create a C-suite, or group of executives who oversee strategic planning for the corporation, rather than a specific function. The term C-suite comes from the titles of these executives, which include chief executive officer, chief financial officer and chief operating officer.
A finance department might evolve from a single bookkeeper who works with outsourced payroll, tax and benefits professionals, eventually bringing those functions in house. As the company grows, the finance department becomes involved in creating strategic plans, such as cost-containment initiatives, debt-service planning and the profit model of the company. The finance department works with each department to help create budgets and to monitor and track their performance.
Although the finance department might align with other departments on an organization chart, it often interacts with each, reviewing annual budgets they submit, recommending them or amending them for approval by executive management or a company owner. The finance department manages a business’s finance by creating an annual corporate budget, performing budget variance analyses, managing cash flow, handling debt, preparing balance sheets and profit-and-loss statements, maintaining credit and working capital, overseeing investment and tax strategies and maintaining legal compliance.
While a finance manager might not have the authority to approve or cut another manager’s budget, he often reviews their budgets. The finance manager might work with various departments to help them find cost savings or recommend that they be given a bigger budget, based on the company’s overall performance. In some instances, the finance manager simply recommends departmental budgets to an owner, executive team or board of directors. For instance, if five department heads submit budgets totaling $300,000, and the finance manager officer believes the company has only $250,000 to spend, he will submit his suggested budgets for each department to the owner for his review. In some hierarchies, department heads may not go over the head of the finance department and must accept his approved budget.