How is the finance function tied into company strategy?
During times of crisis, companies go through major restructuring. The Finance and Accounts departments are among the worst affected, often asked to cut costs, analyze risks, and deal with uncertainty.
Typically, the finance function involves reporting, compliance and financial accounting. While it varies from industry to industry, it doe not take away from the fact that good financial management is important to any entity. Finance functions include investment decision-making, which involves allocation of capital and budgeting to ensure maximum returns; financial decision-making, where a strong financial structure always strives to maximize returns with minimum risks; dividend decision-making, where the goal is to optimize distribution of profits, as every entity wants to earn profits; and liquidity decision-making, i.e. to assign sufficient reserve for current assets which should be valued and disposed off regularly.
Let’s now look at how finance functions are integrated into company strategizing.
Financial projections and quantification enable companies to work effectively, achieve success and track its path in an integrated manner. Financial success is a key indicator of a company’s performance.
It is absolutely necessary for companies to have perfect financial health wherein resources are optimally utilized to increase cash flow. Financial management aids economic value addition to companies where they are free to make effective decisions to add value and to rectify those factors that reduce the company’s value. Efficient finance functions monitor the firm’s assets and improve them to meet set benchmarks. The capital structure and financing decision-making are also dependent on a sound finance function.
Every company sets a profitability goal and the finance function is the main indicator of the efficiency of work, growth trends, risk assessment and helps get the most out of tax pay-outs.
Alas, what is effective strategizing and execution without considering the finance functions relevancy?