Once you establish a business and start your business operations, you will notice a growth in sales. Your income will start generating profit, and your revenue will increase. However, as odd as it may sound, there are some drawbacks and challenges of a growing business. These challenges stem from the lack of a financial management system or department. As your organization grows, it gets harder to manage and control the income, profits, capital, and turnover.
If you want to maintain growth and increase the rate of your company’s expansion, you will have to keep a sharp eye on the financial aspects of the business. You’ll be running into time constraints before you see lucrative results and challenges you didn’t plan when you started.
To deal with this situation, you will have to establish a finance department to oversee all the monetary aspects of your business. In the past, finance workers spent their time quietly working behind the scenes. However, the present age business infrastructure demands the finance department to play an active role and interact with other departments to organize their strategy.
For this purpose, companies are always looking for talented candidates with a keen understanding of finance. Usually, they require the services of a chief financial officer (CFO) to plan, implement, control, and manage all the company’s accounts and make crucial finance-related decisions. It includes the company’s budgeting, financial forecasting, negotiations, and other business planning aspects.
The role of a CFO suggests that the finance department plays a crucial role in helping the business grow. Hence, this article aims to explore different ways the finance department does that.
- Understand what elements steer the company’s performance
To play a significant role in the journey of growing a business, accountants and financial managers have to look beyond the numbers in front of them. They must evaluate the value of the company’s services or products and how their quality can affect the business.
This suggests that finance managers foresee beyond monthly finance reports and involve themselves in the present time. While they keep an eye on strategies that have failed, they also focus on which methods pay off. Their competitive intelligence and their analysis allow other departments to make informed decisions.
For example, if a marketing strategy such as printing and publishing posters has failed, the finance team will point it out according to the cost-benefit ratio. They will observe the cost of the strategy and the revenue it generated. If it is in minus, the plan failed, and the marketing department should look for another strategy.
On the other hand, their analytics and data metrics will help the marketing department identify strategies that have worked. For example, if publishing TV advertisements brought in profit, the finance department can recognize it as a successful strategy.
- Help identify new methods of generating profit
Many companies make the mistake of eliminating small expenses to increase profitability. However, this strategy only works to a certain extent. Cost-cutting can have many disadvantages that may lead to inefficiencies, employee retention challenges, and increased operational expenses.
Hence, such a strategy is only feasible in the short term. From then on, the company will have to look for sustainable and long-term profitability generating strategies. Therefore, the finance department shifts the focus towards the revenue aspects of the business strategy.
For example, by diversifying the business, they can grow the company even more. It would lead to increased productivity, and the company can work towards improving its services or products. It will open up many new opportunities for the company and retain their current employees easily.
- Invest in technology
The amount of data companies have to generate, collect, and store continues to grow exponentially. There is a high demand for finance analytics to make sense of the data they receive and extract information.
They must identify the current trends and help other departments strategize an effective and efficient response to these trends. The aim, of course, is to help improve the business margins and protect them in the long term. Hence, it is the responsibility of the finance department to identify the information that will have an exponential impact on the business strategy of other departments.
As the responsibility upon the finance department is so crucial for the business’s working, they must make use of the latest technology. For example, technology can help them analyze data to identify different patterns and then communicate it to the relevant people.
The finance department also nitpicks between technological updates for other departments and considers their costs and eventual benefits to allow investments.
- Develop pricing capability
The sales department is only concerned with closing as many deals as possible, sometimes even at the expense of other factors such as profitability. The reason for such behavior is that the company rewards the sales department according to the sales made, not the profitability percentage secured.
Every company must understand that not every customer is profitable to the business. Hence, sales should be optimized by the finance department to fit profitability criteria. The finance department analyzes the customer’s portfolio and deduces the profitability analysis from their analysis.
It enables them to understand the cost of serving the customer, and fine-tuning these prices can increase profitability.
- Collaborate with other departments
Running a business is never the responsibility of one department. Each department plays an equally important role in maintaining the quality and the business profitability. Hence, the finance department has to work with other departments such as operations, sales, research and development, operations, etc.
All of these departments must come together to make strategies that can help the business grow. For example, working with the marketing department would ensure that the marketing strategies secure the most results. Working with the sales department allows the sales personnel to pursue customers who offer better profitability.
The finance department plays a central role in keeping the business running. It identifies opportunities for profitability, creates strategies, analyzes the data, and much more. The chief finance officer plays a crucial role in financing all the business strategies.
But a company can only grow if all departments work together to create strategies that benefit the company most. Hence, coordination between the departments is necessary for the business’s success.