Chapter Two: Organization and Control

The organizational structure required to manage your finances will depend on the size and complexity of your business. You may require nothing more than a part-time bookkeeper and the services of an accountant once or twice a year, or you may need an entire financial department. Whatever your needs, the basic financial functions must still be taken care of. When designing your Financial and or Admin departments, always consider the return on investment to make sure your costs don't get out of hand as your company grows.

Accounting Vs. Financial Management

Your Financial Department can be broken down into two basic functions. These are the functions of accounting and financial management.

Accounting functions provide you with financial information. They begin with your financial transactions and end with your Financial Reports. In general, they take care of the daily “number-crunching” activities.

Financial management functions are responsible for assessing, planning and implementing decisions that result in the raising, managing and making of money for your business. In general, they play the more strategic role of “number-managing.”

While these basic functions must occur in every business, the question is: who should be responsible for them in yours? Depending on the size and complexity of your business, you may choose to bring in others to help you. Remember, however, that your financial activities must never be completely abdicated. As the sign on President Harry Truman's desk read, “The buck stops here.”

Financial Accounting Vs. Managerial Accounting

Financial Accounting

Every business has a legal responsibility to provide accurate financial summaries at least once every year. These summaries are of interest to all stakeholders that are external to the business. They are intended to inform shareholders, banks, government agencies, suppliers, employees, or owners about the state of the business during the reporting period. They are prepared by accounting professionals and every effort is made to ensure they are accurate.

Managerial Accounting

Where Financial Accounting tells the outside world what is going on inside a company, Managerial Accounting supplies managers and decision makers inside a company the information they need to make decisions. Managerial Accounting provides information to managers telling them how to best use their resources. It builds on the principles of financial accounting, but focuses on managers decision-making needs.

Of course, managers make use of financial accounting and the information it provides, especially when analyzing overall business performance. Financial accounting creates the central financial documents like Balance Sheets, Income Statements, and Cash Flow Statements that many managerial accounting tools are based on.

Internal, day-to-day decisions are usually made based on information made available by managerial accounting tools.