‘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.
Here are examples of how the finance function works with or supports other functional areas of the business:
It has to pays debts and place orders of other departments inside its business. It tells the other departments of how much money is available to them and also gives advice. Such as if the ‘Marketing and Sales’ department of Tesco are going to spend £500 on a new TV advert and the finance department think that’s far to much money, then they would tell the department and would probably suggest something else if it is urgent. The financial staff are responsible for controlling the money and to make sure that departments don’t over-spend. All the senior managers receive help from the finance department when they are making major decisions on expenditure because the finance department don’t want them to make a huge mistake. This is because all bills have to be paid by the finance department.
The level of sales is the starting point for setting the budget, which is why finance have to keep close links with ‘Sales’. Sales staff would expect finance to generate standard paperwork (invoices, statements etc) when they make a sale on credit. They would want finance to tell them if an existing customer is a bad payer and tell them the credit worthiness of new customers. Tesco’s finance department may receive a call from ‘Marketing’
asking if they want to offer extra discount or different conditions to a particular customer in order to secure a sale.
The employees’ wages or salaries are paid by the finance department. If anyone wants to ask or discuss anything about them then they have to contact the finance department.
Some of Tesco’s stores may need some extra workers for particular jobs. Before they hire any, they need to ask the finance department if the business has money and that it can afford the cost. If the money is not available then the finance department may have to tell the ‘Human Resources’ department that no more staff can be hired. There can even be cases inside Tesco when the finance department have to tell the ‘Human Resources’ department to reduce the number of staff in order to save some money.
The ‘Administration’ department make so many phone calls and print out so many letters, they may be told by the finance department to make less international calls. If the printer breaks down the department may be told to buy a cheap one because there may not be enough money for a good one, or because the department may be over-spending.
Finance has to pay for the goods that different functions have bought. The amount that each department spends need to be up to the agreed budget. Each department have to submit invoices for whatever it buys. The ‘Production’ department of Tesco may submit invoices for the raw materials it may have purchased. The finance department has to raise money for ‘Production’. A department has to be very careful that it does not go over budget because if it does it may face problems since its future orders may get rejected by the finance department. When goods from a department’s order arrive it is the job of that department
to check that everything is correct and is working properly. This is what the finance department expect from all the departments. However, if bills are not paid that department that ordered the goods won’t be blamed because they are dependant on finance to pay the bills. If some of the food items of Tesco have not been delivered because the previous bill didn’t get paid the production department as well as the customers would suffer because of the finance department. The finance department has to record the sales of products that Tesco sells. This shows that it is involved with sales too. The finance department also expects accounts to be kept by all departments so that it can be able to calculate profit or loss. Then it will be able to produce the ‘Profit & Loss Account’.
This is how the finance function supports and works with all the other departments. It deals with the money matters of the other departments and if it makes any mistakes like forgetting to pay a bill etc, then there can be big problems which would stop the business from becoming more better and successful. These mistakes can create a bad reputation of Tesco even if it is just the finance departments fault. If the finance department wants to try and avoid these mistakes then it has to work with and support the other departments effectively.