What does a finance function actually do? Business Growth Tools

Many founders hit an awkward stage in their growth journey where sales are growing, headcount is rising, the business is getting more complex, and decisions carry more weight.

To make matters more difficult, many owner-managers find themselves doing finance work long after they should, rather than focusing on key product, operational, or marketing priorities. At this stage, a proper finance function becomes essential.  

You might think of finance as VAT return, corporation tax returns and year-end accounts. But that’s accounting. A finance function, broadly speaking, is different. It does much more than record what happened last year, quarter or month.

Did you know? ACCA research found that stronger financial capability isn't just a result of business growth, but a direct driver of growth itself.

In this blog, I’ll explain what a managed finance function can and can’t do. I’ll also cover why many scaling companies choose to outsource their finance function rather than hire a six-figure finance director full-time.

Finance function: In brief

In a business, the finance function is a combination of people, systems and reports that helps business leaders know their numbers and plan better for the future. Finance functions look beyond compliance (which your accountant takes care of), and answer questions like:

• Are we actually making money?  
• Which customers are most profitable?  
• Can we afford to recruit?  
• How much cash will we have in six months?  
• What happens if sales drop by 20%?  
• How much can we invest in growth?

These are critical business decisions, and they're easier when you know your numbers.

Quick comparison: Finance function vs bookkeeping and accounting

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Note: A lot of these deliverables can overlap between the three key roles. Sometimes an accountant can do all three. The key difference is that your finance function is primarily about the future, not historical data.

So what does a finance function actually do for a business?

The following are ten general examples of what a finance function can deliver for a business, whether an individual or a team. Not every finance professional can do all of these, but all of them are valuable to a growing business.

Manages cashflow

Cash flow is king. Businesses don’t typically fold because they aren’t profitable enough; they fold because they run out of cash at the wrong time. Your finance function can build dedicated cash flow forecasts that show your cash runway (how long until you run out) and help with debtor management, payment planning, and working capital.

Produces meaningful management reports

Without proper reports, business owners are flying blind. But the answer isn’t more reports; it’s better ones that provide clearer answers. A finance function can deliver monthly or quarterly management accounts that clearly show things like department or product profitability and how your gross margin is tracking.  

These reports are ideal for internal use, such as at board meetings where clarity is essential.  

Creates budgets (and revisits them)

A business without a proper budget is setting itself up for failure. Without a budget, there’s no plan, accountability or understanding of risk. Budgets come in different shapes and sizes, including your annual budget for the whole company, specific departmental budgets, staff cost plans and capital expenditure plans.

All of these share common benefits: better spending decisions, more accountability, and more appropriate resource allocation.  

Crucially, you should also revisit your budgets regularly to see how you’re doing against the original plan.

Builds forecasts

Earlier on I mentioned that finance functions typically look forward, not backwards. This is because a growing business can’t just rely on historical information to plan for the next phase of growth. Forecasts can cover revenue, cash flow, profitability, and operational capacity, and can even model various scenarios. What happens if sales double next quarter? What happens if taxes or NI rise again? With a proper forecast, you can model these scenarios and prepare for different eventualities.

Tracks KPIs (and helps you select the right ones)

KPIs (Key Performance Indicators) are how businesses track performance against their main priorities. These metrics highlight and track the most important growth levers or key risk areas your business faces.

Useful KPIs that your finance function can help you set and track include gross and net profit margins, cash conversion cycles, revenue per employee, customer acquisition cost and customer churn rate.  

But dozens of potential KPIs exist, and too much information can be just as bad as too little. Your finance function can translate raw data into the actionable metrics that make the most sense for your goals.

Supports strategic decisions

Business owners are faced with major decisions regularly, decisions that will shape both the business itself and the futures of the people they employ.

• Should we hire?  
• Should we open another location?  
• Should we purchase new equipment?  
• Should we acquire a competitor?  
• Should we increase prices?

These are all huge decisions that place a lot of pressure on decision makers. Your finance function makes these decisions easier with the support of your numbers, be it an investment appraisal, a break-even analysis or a financial model.

Improves profitability

Profit is ultimately why most businesses exist, but too many focus overwhelmingly on turnover instead. A massive increase of turnover without efficiency can still cause a business to lose money. That’s why it’s so important to understand profitability at every stage.

Better still, your finance function can dig deeper, helping you understand profitability by product range, service line or department, even for specific customers in certain sectors. With the right information on profitability, you can make the right decisions to preserve and improve it.

Strengthens financial controls and systems

Finance isn’t just about people (although they are critical to it!). It’s also about having the right tools, controls and systems in place to support your growth and financial resilience.

Financial controls can be both preventative (stopping issues before they occur) and detective (catching issues when they do happen). Here are some examples:

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Without these controls in place, you’re risking more than just efficiency and profitability, but also security and compliance problems. Your finance function must make these controls work for you.

Supports funding and investment rounds

When growth is the goal, external funding is often needed, whether though loans or cash injections from new investors. In order to secure this funding, your business needs to prove itself to be both a good investment, and capable of repaying lenders what is owed. This proof comes from your numbers.

According to British Business Bank research, one quarter of SMEs have sought external finance in recent years, with growth increasingly cited as a key reason for funding requirements.

Finance specialists, usually with the help of Corporate Finance experts, can help you develop financial models and due diligence reports that back up the narrative of your business. They can also help you assemble robust investor reports and support with due diligence.

Acts as a strategic partner to the business owner

Sometimes business owners get the most value from the strategic advice and insights the finance function can provide. It means that instead of asking “What do the accounts say?” they can ask more deliberate questions, like “What should we do next?” Your management accounts provide the data, and your finance team lead's advice can unlock its true potential.

Why not just hire a finance director?

For some businesses, hiring a finance director is essential, but it isn’t practical for many growth-stage companies. A full-time Finance Director can cost £90,000-£130,000+ annually, and that’s before employer taxes, pension contributions and software costs.

Many SMEs need strategic financial leadership long before they can justify that level of investment. That's why outsourced or managed finance functions have become increasingly attractive. It gives you access to the valuable deliverables in this blog without having to build an internal team from scratch.

Learn more about Managed Finance

If you're receiving your accounts but still feel like you're making decisions without the complete picture, it might be time to look beyond compliance. We’ll be happy to discuss your current situation and needs, and provide an honest assessment of whether we can help, or whether it is time to invest in someone internally.

Learn more about how Gravitate Managed Finance can help you