Financial

Financial department



Financial department is one of the key parts of a practice enterprise, because money is the utmost necessity in any company, not only in a practice enterprise. All the transactions go through it and the financial department has to have an on-going two-way interaction with other departments all the time. In the practice enterprise I worked there was one person, the financial director, in charge of the financial department.



Obligations 

Financial department is responsible for keeping a record of all transactions, in other words keeping an up-to-date bookkeeping. Also financial calculations are the department’s responsibilities. It is also responsible for making budgets and analysing the actual results. It needs to inform other departments of the practice enterprise from the results the department gets, as the other departments have the obligation to inform it about their costs and sales department from sales. The financial department has to also pay all bills and supervise the cash flow.



Before the beginning of operations 

The practice enterprise needs to decide, how long their financial periods will be. In the practice enterprise I worked, the one monitoring period lasted one month. Before founding the practice enterprise, all the departments have to estimate the expenses of at least the first three of their financial periods. For example the sales department has to make a sales forecast, marketing department an estimate for all marketing expenses, human resources department an estimate for the salary and other personnel expenditure and product department the purchasing expenses estimate. In the practice enterprise I worked, all the estimates and forecasts were given as Excel –files via Google Docs. Also the practice enterprise has to know the amount of share capital by this time. The financial department will then make a budget from the estimates and forecasts. Then the financial department must have a meeting with other departments where the financial department presents the budgeted bookkeeping and calculations. Depending on the results of the calculations, the company need to consider should it decrease some of the costs and/or take a loan (if it hasn’t already done that).



<span lang="EN-GB" style="font-family: "Times New Roman","serif"; font-size: 12pt; mso-ansi-language: EN-GB; mso-bidi-font-size: 11.0pt;">Budget 

<p class="MsoNoSpacing" style="margin: 0cm 0cm 0pt;"><span lang="EN-GB" style="font-family: "Times New Roman","serif"; mso-ansi-language: EN-GB;">Budget consists of detailed information on budgeted costs and sales and budgeted calculations for the chosen financial period. The budget can be based on the same period’s figures from last year or they can be own estimates. The calculations that are in the budget are profit and loss –statement, a cash flow –statement and a balance sheet, all based on the budgeted figures. These calculations in the budget are highly important, because from them the financial department sees, how the next financial period might end and if there possibly are any financial problems to be solved.

<p class="MsoNoSpacing" style="margin: 0cm 0cm 0pt;">

<p class="MsoNoSpacing" style="margin: 0cm 0cm 0pt;"><span lang="EN-GB" style="font-family: "Times New Roman","serif"; font-size: 12pt; mso-ansi-language: EN-GB; mso-bidi-font-size: 11.0pt;">Before a new financial period 

<p class="MsoNoSpacing" style="margin: 0cm 0cm 0pt;"><span lang="EN-GB" style="font-family: "Times New Roman","serif"; mso-ansi-language: EN-GB;">When the financial department has gotten all the estimates from each department, it will make a budget. The financial department will inform the other departments from the results and with these budgeted calculations the practice enterprise will get an estimate of their profit (or loss) and the amount of cash in the end of the financial period. The practice enterprise can also see from the budget, if they need to get a loan from bank and if they need to decrease their budgeted costs.

<p class="MsoNoSpacing" style="margin: 0cm 0cm 0pt;"> <p class="MsoNoSpacing" style="margin: 0cm 0cm 0pt;"><span lang="EN-GB" style="font-family: "Times New Roman","serif"; font-size: 12pt; mso-ansi-language: EN-GB; mso-bidi-font-size: 11.0pt;">During a financial period 

<p class="MsoNoSpacing" style="margin: 0cm 0cm 0pt;"><span lang="EN-GB" style="font-family: "Times New Roman","serif"; mso-ansi-language: EN-GB;">During a financial period the financial department monitors the cash flow and updates the bookkeeping and calculations always when it gets information on the real costs and sales from other departments. This is why <span lang="EN-GB" style="font-family: "Times New Roman","serif"; mso-ansi-language: EN-GB;">the financial department has to have an on-going two-way interaction with other departments all the time. <span lang="EN-GB" style="font-family: "Times New Roman","serif"; mso-ansi-language: EN-GB;">For example in our case, when we had big sales only from the trade fairs we participated, the sales department gave the proceedings to financial department as soon as possible after the trade fair. It also informs the other departments from the results during the period and in the end of it there is always a meeting where the financial department presents its results to other departments and the teachers.

<p class="MsoNoSpacing" style="margin: 0cm 0cm 0pt;">

<p class="MsoNoSpacing" style="margin: 0cm 0cm 0pt;"><span lang="EN-GB" style="font-family: "Times New Roman","serif"; font-size: 12pt; mso-ansi-language: EN-GB; mso-bidi-font-size: 11.0pt;">Tools 

<p class="MsoNoSpacing" style="margin: 0cm 0cm 0pt;"><span lang="EN-GB" style="font-family: "Times New Roman","serif"; mso-ansi-language: EN-GB;">The main tools for the financial department are Microsoft Excel and Vepen. The bookkeeping is made in Excel, but all the documents are also printed out in a folder. All the calculations are made in Excel. The practice enterprises’ bank account is in Vepen and all the bills are paid in there too. In the practice enterprise I worked, we used Google Docs as a platform for sharing information inside the practice enterprise.

<p class="MsoNoSpacing" style="margin: 0cm 0cm 0pt;">

<p class="MsoNoSpacing" style="margin: 0cm 0cm 0pt;"><span lang="EN-GB" style="font-family: "Times New Roman","serif"; font-size: 12pt; mso-ansi-language: EN-GB; mso-bidi-font-size: 11.0pt;">Calculations 

<p class="MsoNoSpacing" style="margin: 0cm 0cm 0pt;">

<p class="MsoNoSpacing" style="margin: 0cm 0cm 0pt;"><span lang="EN-GB" style="font-family: "Times New Roman","serif"; mso-ansi-language: EN-GB;">Profit and loss statement 

<p class="MsoNoSpacing" style="margin: 0cm 0cm 0pt;"><span lang="EN-GB" style="font-family: "Times New Roman","serif"; mso-ansi-language: EN-GB;">Profit and loss statement is a calculation which results show the amount of gross profit margin, gross profit percentage, profit before interest, depreciation and possible profit tax, net profit (or loss) and the breakeven point.

<p class="MsoNoSpacing" style="margin: 0cm 0cm 0pt;"><span lang="EN-GB" style="font-family: "Times New Roman","serif"; mso-ansi-language: EN-GB;">The information you need when you start doing it are turnover, variable costs, fixed costs, interest and depreciation. In practice this means that before you can get the final results of P&L, the sales department have to inform you from all the financial period’s sales (turnover), the product department have to inform you from the final cost of the sold products (variable costs), the administration department need to inform you from the final cost of fixed costs and depreciation and you need to know the interest of the practice enterprise’s loan.

<p class="MsoNoSpacing" style="margin: 0cm 0cm 0pt;">

<p class="MsoNoSpacing" style="margin: 0cm 0cm 0pt;"><span lang="EN-GB" style="font-family: "Times New Roman","serif"; mso-ansi-language: EN-GB;">The form of the P&L

<p class="MsoNoSpacing" style="margin: 0cm 0cm 0pt;">

<span lang="EN-GB" style="font-family: "Times New Roman","serif"; mso-ansi-language: EN-GB;">

<p class="MsoNoSpacing" style="margin: 0cm 0cm 0pt;"><span lang="EN-GB" style="font-family: "Times New Roman","serif"; mso-ansi-language: EN-GB;">Cash flow statement 

<p class="MsoNoSpacing" style="margin: 0cm 0cm 0pt;"><span lang="EN-GB" style="font-family: "Times New Roman","serif"; mso-ansi-language: EN-GB;">Cash flow statement tells the total amount of cash inflow, cash outflow and ending cash from the financial period and the beginning cash of the next financial period.

<p class="MsoNoSpacing" style="margin: 0cm 0cm 0pt;"><span lang="EN-GB" style="font-family: "Times New Roman","serif"; mso-ansi-language: EN-GB;">The information required for doing this is the amount of beginning cash of the current financial period, turnover, possible new loans taken during the period, variable costs, fixed costs, interest expenses, loan repayment, taxes paid, the value of bought equipment and dividends, if given. For this one you get almost all the necessary information from the P&L except for the beginning cash, new loans, amount of loan repayment, taxes and dividends.

<p class="MsoNoSpacing" style="margin: 0cm 0cm 0pt;">

<p class="MsoNoSpacing" style="margin: 0cm 0cm 0pt;"><span lang="EN-GB" style="font-family: "Times New Roman","serif"; mso-ansi-language: EN-GB;">The form of the cash flow statement

<p class="MsoNoSpacing" style="margin: 0cm 0cm 0pt;">

<span lang="EN-GB" style="font-family: "Times New Roman","serif"; mso-ansi-language: EN-GB;">

<p class="MsoNoSpacing" style="margin: 0cm 0cm 0pt;"><span lang="EN-GB" style="font-family: "Times New Roman","serif"; mso-ansi-language: EN-GB;">Balance sheet 

<p class="MsoNoSpacing" style="margin: 0cm 0cm 0pt;"><span lang="EN-GB" style="font-family: "Times New Roman","serif"; mso-ansi-language: EN-GB;">With balance sheet, you state from where have you gotten the financing and to which sources you have used all that money. The items and their values or amounts or results are divided into assets and liabilities. The total amounts of assets and liabilities must be equal.

<p class="MsoNoSpacing" style="margin: 0cm 0cm 0pt;"><span lang="EN-GB" style="font-family: "Times New Roman","serif"; mso-ansi-language: EN-GB;">The information you need to have in this are the value of bought equipment and stock, the practice enterprise’s account receivable, VAT receivable, account payable and VAT payable, the amount of cash, capital, bank loan and the result of P&L. This calculation is a bit trickier than the two others and it was optional to do in the practice enterprises.

<p class="MsoNoSpacing" style="margin: 0cm 0cm 0pt;">

<p class="MsoNoSpacing" style="margin: 0cm 0cm 0pt;"><span lang="EN-GB" style="font-family: "Times New Roman","serif"; mso-ansi-language: EN-GB;">The form of the balance sheet

<p class="MsoNoSpacing" style="margin: 0cm 0cm 0pt;">

<p class="MsoNoSpacing" style="margin: 0cm 0cm 0pt;"><span lang="EN-GB" style="font-family: "Times New Roman","serif"; mso-ansi-language: EN-GB;"> Done by Noora