The finance department is primarily responsible for accounting and managing risk.
Accounting involves all assets and liabilities of the organization. The finance department keeps all other departments accountable to operating within their allocated budgets. If the organization has any financial assets such as bonds, cash, loans, or stock, these are managed by the finance department.
Risk management includes assessing risks and recommending actions to reduce risk. There are a variety of risk categories including compliance with laws and regulations, liabilities arising from contracts, and competitors copying the organization’s success. This is why the finance department is the home for the organization’s legal team, if it has one. If it doesn’t have one, it’s responsible for seeking legal counsel as needed.
Risk management also includes projections and forecasts. The finance department can use data it has available to create these, but in many cases additional information will be needed from other department to create the projections because they will depend on the activities of the other departments. For example, the personnel department needs to contribute hiring needs and historical separation rate, the revenue department needs to contribute new product marketing and sales plans and projections, and all departments need to contribute projected expenses. The finance department can then compile all of it into a combined projection.
What the finance department does not do: fundraising. Increasing revenue is the responsibility of the revenue department, and raising money in the form of investments and loans is the responsibility of the executive department.
Important finance reports produced by the finance department include balance sheet, income statement, and cashflow statement.
Important scores calculated by the finance department include return on investment (ROI) and return on assets (ROA).
The executive responsible for all finance activities is the Chief Finance Officer, or CFO.
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