The finance function in modern business extends beyond just preparing financial reports and tax forms.
If you’re interested in pursuing a career in finance — or are involved in setting up the finance function in a growing organisation — this article will help you to understand the key activities typically carried out by the finance department.
The first five are considered the necessary minimum, while the rest are ‘good to have’.
A quick side note: I won’t go into the details of organisational structures or individual roles and responsibilities here. At an early stage, many businesses combine some duties into a single position or outsource them entirely, while larger organisations establish specialised roles for particular activities.
To start things off, let’s go through the basics.
Table of contents
Bookkeeping
Bookkeeping is the backbone of any organisation — without it, we can’t track finances, prepare financial statements, make informed decisions, and stay compliant with tax laws.
Key responsibilities of the bookkeeping function include:
- Recording income and expenses
- Reconciling bank statements
- Maintaining financial records
Typically, bookkeeping processes are set up from day one — all activities described below depend on the accuracy of financial data.
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Payroll
Payroll involves processing employee payments, such as salaries, commissions, overtime, benefits, and parental and sickness leave.
In addition to that, it includes tasks such as maintaining staff files, calculating statutory dues, and distributing payslips to employees. There are also often inquiries from employees, for example, regarding salary payments.
Given the complexity and the volume of work, many companies outsource this function to a payroll provider.
Cash flow management
Cash flow management is another vital process that is established early on — if there’s no control over the movement of cash in and out, the business can simply run out of money.
To prevent this from happening, finance staff manage two things: Accounts Receivable (AR) and Accounts Payable (AP).
Accounts Receivable is the money customers owe the business for the goods and services provided to them.
Key AR activities:
- Invoicing customers correctly and on time.
- Performing credit control to collect overdue payments. Yes, this means making awkward phone calls to late payers.
- Conducting credit checks on major customers to minimise the risk of non-payment.
- Maintaining a customer database to track payment history and customer information.
Accounts Payable is the money the business owes to vendors and suppliers.
Key AP activities:
- Paying customers correctly and at the right time — not too late, but not too soon either, because we can keep the cash in operations.
- Verifying employee expense reports and processing reimbursements.
- Addressing any disputes or issues with payments.
- Maintaining a supplier database.
Both AR and AP processes are closely related to liquidity planning, i.e. preparing a cash flow forecast to make sure the company has enough money to meet its short-term obligations.
Tax and compliance
Business taxes include corporate income tax, payroll tax, value-added tax (VAT), and others.
No surprise, proper tax accounting is complex but necessary to avoid fines and legal issues.
The tax function involves not only calculating liabilities and filling out numerous forms but also reducing the tax burden (in a lawful way, of course) to minimise the impact on the bottom line.
In addition to tax compliance, a company may also need to adhere to other governmental regulations that require us to provide information periodically or when a particular event occurs. For example, under GDPR, organisations must report personal data breaches within 72 hours.
Financial reporting
Financial reports are usually prepared on an annual basis.
In essence, they serve as a record of the company’s financial results. The core statements are the income statement, the balance sheet, and the cash flow statement.
Financial reports are used by:
- Management: to track performance and plan for the future (see below).
- Shareholders: to assess the return on investment and decide whether to invest in the company further.
- Lenders: to evaluate creditworthiness before granting a loan.
- Government: to determine whether the company paid the proper amount of taxes.
If the business is large enough, there could be a legal requirement to audit financial statements, which involves liaising with auditors and providing requested documentation.
Finally, the finance team should develop and monitor internal controls. This is necessary to maintain the integrity of financial statements and prevent fraud.
Now let’s review other processes typically established as the organisation grows.
Performance measurement
To make informed decisions, managers need more than just financial reports. Each strategic business objective should have granular reporting on respective KPIs presented in neat dashboards.
KPIs can cover a range of financial metrics, such as customer lifetime value (LTV) and profit margins, as well as non-financial metrics, like employee engagement and customer satisfaction.
Here we would also track variances between budgeted and actual figures.
It’s worth mentioning that as performance measurement has become more widespread in organisations, various issues emerged.
Columnist Simon Caulkin summarised the problem as follows:
What gets measured gets managed — even when it’s pointless to measure and manage it, and even if it harms the purpose of the organisation to do so.
In other words, measure what matters. Nowadays, many businesses recognise the importance of linking the tracking process to decision-making.
Operational and strategic planning
Equally, the finance function supports operational planning — developing compensation and sales plans, preparing budgets, and forecasting cash flow (remember AR and AP?) — as well as strategic, long-term planning.
The goal of operational planning is to make sure there are enough resources to achieve short-term goals.
For instance, a sales plan would outline the sales targets for a certain period, and a budget would identify the funding needed to support these targets.
In contrast, strategic planning is about creating a 3–5 year roadmap for the organisation, which is translated into numbers.
The financial planning team would prepare forecasts, run scenario analyses, and develop financial models incorporating both perspectives. This helps to allocate resources effectively and demonstrate how the business will achieve its targets.
Risk management
Every organisation is exposed to risks, varying significantly across different industries.
For example, most businesses face interest rate risk and currency exchange risk. Risk management specialists aim to quantify these risks and develop strategies to hedge against them.
Here’s a classic example of how to manage the currency exchange risk:
Let’s say a company is based in Europe and sells products to customers in the United States.
To mitigate fluctuations in the exchange rate between EUR and USD, the company enters into a forward contract with a bank, fixing the exchange rate at a rate agreed upon today.
This way, the future exchange rate won’t affect the revenue.
Corporate finance
Corporate finance deals with financial decisions intending to maximise shareholder value. It covers:
Capital structure
When a company uses a high share of debt financing (borrowing money), the risk of default is higher, whereas raising equity dilutes earnings and value for existing investors. So, there must be the right mix of debt and equity to fund operations.
Capital budgeting
Capital budgeting refers to evaluating investment projects — such as developing a new product — to estimate future cash flows and determine feasibility.
Raising finance
There’s a need to represent the company in meetings with (potential) lenders and investors to tell the financial story. It’s where KPI reports and strategic plans come in handy.
Dividend policy
How much profit should you reinvest in the business, and how much to distribute to shareholders? An appropriate dividend policy would define this split and the timing of dividend payments.
Final thoughts
While this list isn’t exhaustive, I hope it gives you a solid understanding of the core functions carried out by the finance department. You can refer to it as a foundation for building or enhancing the finance function that delivers the most value to the business.
As you see, it’s not just about doing basic bookkeeping and paying bills — there’s a range of activities critical for compliance, decision-making, and driving long-term growth.
