The ‘Finance Department’ has the responsibility to see that the money coming into and out of the business is managed properly. If this is done efficiently then there should be enough money to pay the bills that are due. The ‘Revenue’ is used to pay for the things they had to buy in order to run the business. It is also used to pay the workers. The revenue is the money made by the business by selling its products and services.
This chart shows the main activities of the ‘Finance Function’: The ‘Finance Director’ is in charge of: financial accounting, costing & budgeting, managing finance and payroll. Financial Accounting deals with recording transactions, keeping accounts and preparing the reports for management. Costing & Budgeting deals with working out the cost of products, analysing past costs and income and setting targets for the costs and income. Managing Finance deals with working out what resources are needed and raising capital and loans for the finance resources. Payroll deals with keeping track of the amount of hours worked by employees and calculating the pay & deducting taxes.
‘Keeping records of all financial transactions’ is one of the main functions of the finance department. In this the finance department count all the figures of sales to calculate how much profit or loss the business has made. Once they come up with a total they can then see how much tax the business will have to pay. The department helps the managers to make the right decisions. This function is important to Tesco because if they don’t calculate whether the business is making profit or not then they won’t be able to set proper targets since they won’t know the progress they have made in making profits. Finance won’t be able to advise the managers as effectively to. Tesco is always spending money or receiving it from the sale of goods and services so it is very important that they keep records of whatever they do. Read also about importance of production function
‘Preparing Accounts’ is another function of the finance department. Every business has to prepare accounts to show its financial status during a year. It has to prepare a ‘Balance Sheet’ which records what a business owns and owes (its debts). It also has to prepare a ‘Profit ; Loss Account’. This states the income, expenses, profit or loss of the business in the whole year. This function is also very important because they can become useful to different people for different reasons. For example, the ‘Inland Revenue’ can make sure that Tesco has paid the correct amount of tax. Suppliers can also confirm that Tesco will be able to pay its debts. Shareholders can decide whether or not to invest in Tesco, more people may buy its shares because they can see Tesco has made a profit. If these accounts are not prepared then Tesco will not be able to set financial targets (the money the company aims to make and spend in the year). These targets are produced on a document called a budget.
‘Paying the wages of salaries of staff’ is another function of the finance department. A wage is a payment that is calculated hourly and paid weekly, where as a salary is a payment based on an annual rate. From the total of employees’ wages and salaries the business has to minus income tax and national insurance. For this they will also need to keep very accurate records. The business will then know if it is required to operate a pension scheme for its employees. This is an important function for Tesco’s finance department because they need to do the job very carefully and accurately; if Tesco makes any mistakes it can get a bad reputation.
‘Raising capital and other resources for the business’ is also one of the main functions of the finance department. There are two main sources of capital. One is loan capital which is raised by borrowing money normally from a bank or other business. The other is retained profits; this means that some of the profit a business makes it can use it to purchase the resources the business needs. A company can sell shares to raise more capital in the business. The people that buy the shares are known as the companies’ shareholders. This means they own a share of the business. This is a very important function for Tesco because if the finance department don’t raise enough capital then it will not be able to buy the resources it needs in order to make itself more effective. Every business needs resources to trade successfully. Capital is the starting point for every business without it a business can hardly do anything. The finance department of every business including Tesco works with and supports nearly every other functional area of the business.