Meet the 21st Century Finance Department – How It Should Work, Its Approach and How It’ll Evolve
Your finance department is the backbone of your business. They don’t just manage your money. They create sustainable systems that help nurture your company, keep it afloat, and allow you to plan for the future. No two finance departments look the same. Some look as simple as invoice management, while others are made up of hundreds of employees that manage everything from payroll to mergers.
Even finance departments that look drastically different – like that of a start-up versus a Fortune 500 company – have a few similar traits. In the 21st century, the purpose and approach of finance departments are changing to take a bigger picture approach. More companies than ever before are adding financial professionals to their c-suite and leadership teams.
We’re looking at the roles and functions within a finance department, why their approach matters, and how they’re evolving in the 21st century. As the world of work changes in our post-pandemic society, finance departments are no longer just a home for paperwork and spreadsheets.
The roles and functions of a traditional finance department
No two finance departments are the same. Just like us, they come in different shapes and sizes. Like any department though, they all have a few functions in common. These four roles and functions exist within traditional finance departments and continue to be the foundation stone for their evolution.
- Controlling
Every financial department should have a ‘financial controller’ – or comptroller – who is responsible for ensuring that the company acts within financial regulations. They’re also responsible for ensuring that all records within the company are accurate.
Several functions fall under the ‘controlling’ function, including ensuring accurate and timely reporting of accounts and tracking, monitoring, controlling costs, and ensuring the accurate valuing of inventory. Part of this function also includes creating and enforcing controls for the reporting of the company’s monthly finances to ensure it complies with regulations.
- Recording
Most people outside of the business world think of finance departments as being made up of spreadsheets, number crunching, and never-ending documents. This perception isn’t entirely wrong. One of the key roles of a finance department is to record financial activity within the company – including entering and categorising information, as well as reviewing every transaction.
Accountants largely oversee this function of finance departments and record information that includes payroll, accounts payable, and accounts receivable. This information needs to be recorded to ensure that there’s an up-to-date record of monthly payments, as well as money owed to the company and its suppliers.
- Managing
The third functioning of a finance department is to manage financing. This role is typically overseen by the Chief Financial Officer (CFO). Your company’s CFO will oversee the strategic decision making with regards to the company’s financial situation, as well as creating both a short-term and long-term strategy.
The CFO sits at the head of the department, overseeing every aspect of it and playing a vital role in the FP&A function of the department. It’s also the responsibility of the CFO to manage the financial department by acting as a link between internal and external stakeholders within the business. Your CFO is one of the most important appointments you’ll make in your company.
Whether you’re a start-up or an expanding business, your CFO leads your finance department from the front and plays a key strategic role in determining the success of your organisation.
- Financial Planning & Analysis (FP&A)
Financial planning and analysis (also known as FP&A) is a function of financial departments that involves gathering and analysing financial data to predict trends and relevant forecasts. These findings will help to inform the future decisions of the business and feed into every aspect of the decision-making process.
FP&A functions include creating visuals to allow c-suite and leadership employees to easily understand the current state and performance of the business. One of the most important roles within the FP&A is responsible for budgeting and forecasting, including creating financial targets at a company and department level within the business. A third task within this function includes pricing analysis to help determine the best pricing structure for products for optimal ROI.
How the size of your company changes financial roles
While all companies will want to have a financial department that fulfils these four functions, the specific finance roles are usually determined by the size of your company. A start-up will have different financial priorities than a more established small business, which will also differ from large-scale companies.
Depending on the number of employees you have, one employee may be overseeing multiple responsibilities. The size of your business will determine which aspects and functions your financial department will prioritise. While every company will have its own priorities, most start-ups, small businesses, and medium to large companies will have similar goals.
- Start-ups
Start-ups usually don’t have an established finance department due to the fact they are newly established and focused on rapid growth. As the company begins to grow, it’s easy for its finances to become more complicated to track. Many start-ups decide to hire an interim CFO to help them manage their finances and implement early strategies.
Most start-ups will have their leadership team and employees undertake multiple roles within the company. These organisations often benefit from the experience of a freelance CFO who can oversee the FP&A function of the financial department on a part-time, full-time, or interim basis, as well as supporting them, with strategic planning.
- Small businesses
While small businesses are more established than start-ups, they often lack the finances to maintain a fully-fledged finance department. It’s usually the owner of the business who will oversee the record-keeping and general finances of the company. Many choose to hire the help of an accountant to stay on top of the recording and controlling functions.
Although a full financial department is usually out of reach for these companies, many can benefit from hiring a freelance CFO. Hiring one on a part-time or interim basis can allow small businesses to benefit from the experience of a CFO without making a major financial commitment. A CFO can also relieve the pressures on the company’s CEO and allow them to focus on other aspects of the business. Hiring a fractional CFO can be as beneficial for a small business as having a full finance department.
- Middle to large companies
As a company grows, it begins to develop the finances it needs to hire and build a finance department. When the team grows, each member of it will start to develop a more defined scope of responsibilities. Most will oversee one of the four functions with larger finance departments having multiple employees working within the scope of each function, often focusing on specific tasks within these functions.
Whatever your company size, you want to have a team that covers all four functions of a financial department. Whether you have one or one hundred employees, they should be covering all of these basic functions. As finance departments change and evolve to keep up with changes within society and business in general, these four functions will remain at the core of the department.
The evolution of finance departments
Financial departments are rapidly changing as businesses in every industry find themselves adapting to changes in automation, tech, and society at large. Gone are the days when financial departments were solely the home of data and numbers to inform decision making. Finance departments are taking on a more hands-on approach to business operations and playing a more vital strategic role within the company.
Regardless of what industry you operate in, you’ll already be seeing some of these changes within your financial department and the role they play in the leadership of your company.
- The growth of tech and automation to oversee basic manual tasks
Development within technology is leading to increased innovation within financial departments. Many manual tasks are now being automated to allow financial departments to focus on other aspects of their role. Another benefit of increased automation and technology is the easy sharing of data that is more time and cost-effective. Cloud-based software means that a large volume of information, including those regarding tax, payroll, and invoices, can be stored electronically.
Accounting and book-keeping software are automating many of the daily tasks of finance departments, including accepting payments and overseeing payroll responsibilities. The evolution of finance departments is seeing them move away from administrative tasks and towards a larger leadership role, particularly with analysis and strategy. Another benefit of this technological evolution is that every member of the finance department and senior leadership can carry out analysis and forecasting to lead to better decision making.
Financial roles – from accountants to CFOs – are becoming more augmented. Responsibilities are focusing more on the analytic and strategic functions of financial professionals. This automation means that companies can invest more of their finance into leadership roles, such as CFOs, and less into administration roles.
The future of financial departments is all about using technology to bring new insights to the table, allowing financial professionals to focus less on administrative tasks and more on FP&A functions. Departments no longer focus the majority of their time on data collection for recording, controlling, and managing functions.
Going forward, your financial department will need to shift its focus on understanding financial concepts, strategy, and forecasting. McKinsey’s recent ‘Finance 2030’ research suggests that future CFOs and financial professionals will need to have the skills to utilise AI tools and computer programmes for everyday tasks and forecasting. They’ll also need to be able to translate the insights and strategies offered by these systems to internal and external stakeholders.
With technology already overseeing most of the administration tasks for financial professionals, we can expect this trend to continue as AI helps to automate more repetitive tasks. These tasks could include everyday activities like invoicing with software that essentially automates these transactions. With the increasing role of technology reducing daily tasks, they are also increasing the importance of positions like CFOs as strategic leaders within the organisation.
The growth of flexible working within financial departments
Flexible working is the future of every industry. Not only are employees looking for fractional and flexible working, but organisations are also shifting towards hiring on a fractional basis. Gone are the days when you could only hire an employee full time. Freelance financial professionals, like part-time CFOs, can allow companies to benefit from having experts on their team without paying a full-time salary.
Most start-ups or small and medium businesses aren’t in a financial position to hire a full-time CFO. Many freelance CFOs have experience in large-scale and Fortune 500 companies, bringing a unique insight into smaller organisations to help them grow. While there are dozens of benefits of fractional CFOs, many revolve around the accessibility of highly skilled professionals for either a specific project or to develop a long-term strategy.
Benefits of fractional CFOs and financial professionals include:
- Access to professionals who have years of experience working with successful companies across various industries and have helped other organisations scale and grow.
- Reduce costs by hiring employees on a freelance basis. You can hire a fractional CFO on a contract that works for your company’s budget.
- You can hire a CFO on an interim basis, allowing you to look for the professional with the right skills for your specific task.
- Outsourcing the hiring process allows you to open the talent pool to freelance financial professionals across a greater geographical region. At FD Capital, we regularly work with international financial professionals who are available to work with UK-based companies on a fractional basis.
There’s no denying that financial departments are evolving as technology develops and the workplace changes in our post-pandemic society. While the core functions of a financial department remain the same, the roles of your team will change as more tasks become automated.
At FD Capital, we pride ourselves on matching start-ups and SMEs with full-time, part-time, and interim CFOs that can help them meet their long-term goals. Our talent pool of financial professionals have experienced the evolution of the industry first-hand and have the technological skills to guide your finance department through these changes.
Call us today for a no obligation initial discussion
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Adrian Lawrence FCA with over 25 years of experience as a finance leader and a Chartered Accountant, BSc graduate from Queen Mary College, University of London.
I help my clients achieve their growth and success goals by delivering value and results in areas such as Financial Modelling, Finance Raising, M&A, Due Diligence, cash flow management, and reporting. I am passionate about supporting SMEs and entrepreneurs with reliable and professional Chief Financial Officer or Finance Director services.
