Consider the new manager
who is asked to prepare a
budget for his or her
department.
How do you begin your
budget? Well, how about
sales? Do you start with
what you hope you can
sell? What you’re sure you
can sell? What you sold
last year or last month?
What will management believe?
OK, if that’s too confusing, maybe you should start with
expenses. What do you need to spend? What you spent last
year or last month? What you hope you can get approval to
spend? Do you actually know what it will really cost?
Just knowing where to begin is a challenge. And then how
do you decide how much money or staffing you’ll need to reach
the goals you want to achieve or that your boss wants you to
achieve?
Whew! Why can’t Finance just do this for you?
And the truth is, of course, they really can’t. Oh, sure,
Finance can prepare something that looks like a budget and in
many companies that’s what happens. But then it’s not really
your budget; it’s theirs. And if you miss the target they set, well,
it’s not really your problem, now, is it? Yet as managers we
know that each department knows its unique needs and capabilities
better than anyone else. And we know from Management
101 that a goal must be accepted—better yet, owned—by the
people who actually will do the work, for there to be a strong
commitment to achieving it. And that, simply put, is why each
department within the organization must do its own budget and,
therefore, why its managers must learn to budget effectively.
And, yes, you will need to be able to answer, at some level, all
the questions I’ve raised above. Happily, Chapter 10 in this
book will help you do that.


The Role of the Finance Department

The Role of the Finance Department
The Finance Department really has two fairly distinct jobs to
perform in most companies: managing the company’s financial
resources (“Finance”) and recording and reporting all its financial
transactions (“Accounting”). Many of today’s mid-sized and
smaller companies don’t establish separate Finance and
Accounting departments within their organizations. A company
might instead have a chief financial officer who performs
or oversees the
finance functions for the
company and oversees the
company’s accounting
activities. Larger companies
will usually be fairly
precise about their organization
and are likely to
have distinctly separate
departments reporting to
the CFO.
Finance
The Finance Department can be an accumulation of diverse
functions, depending on the company. It may oversee such
areas as insurance and risk management, contract administration
and pricing, internal auditing, investor relations, and more.
But at a minimum, Finance will likely be responsible for treasury
activities, often under an executive carrying the title of
treasurer or vice president for finance. His or her role will likely
include cash management, bank relations, investments, and
everything having to do with making sure the organization has
enough cash to do its job and has all its cash busily working or
productively invested.
Major activities like mergers and acquisitions, attracting
investors to a company seeking outside capital, and internal
management of public stock offerings—all traditional roles of
Finance—will usually fall within the Finance Department’s