Why are Professional Sports Franchises Increasing in Value?
The sports business has traditionally not been a very lucrative one. It was common for the valuation of sports franchises to stay stagnant for a large number of years or even drop down as the years progressed. However, all this has changed drastically now. It is now common for sports team franchises to drastically go […]
Valuing Cash Flows in Different Periods
Cash flows vary from project to project. In some cases cash flows will occur evenly over time. There might be payments of similar amounts that will be spread out over a time period at regular intervals. On the other hand, there might be payments which are irregular and have no pattern whatsoever. The challenge in […]
Working Capital to Sales Ratio – Meaning, Formula, Assumptions and Interpretation
Formula Working Capital to Sales Ratio = Working Capital / Sales Meaning Stating the working capital as an absolute figure makes little sense. Consider two companies, both having the same working capital of USD 100. While one company uses this working capital to generate sales of USD 500, the other uses the same amount as […]
Remote Deposit Capture (RDC)
Commercial banks have been relying on a wave of digitization in order to provide the best-in-class service to their customers. They provide several services which allow their customers to shorten their credit to cash cycle. One such service which has been enabled by the advent of technology is called remote deposit capture (RDC). Remote deposit […]
Multiplier Effect: How Fractional Reserve Banking Creates Money ?
The modern banking system is considerably different from what the average person believes it to be. Banks are not institutional moneylenders. They do not simply collect money from people and lend them to others. Instead, banks in the modern world have the power to create money when they lend it out. The process by which […]
Contemporary organizations need to practice cost control if they are to survive the recessionary times.
Given the fact that many top tier companies are currently mired in low growth and less activity situations, it is imperative that they control their costs as much as possible.
This can happen only when the finance function in these companies is diligent and has a hawk eye towards the costs being incurred. Apart from this, companies also have to introduce efficiencies in the way their processes operate and this is another role for the finance function in modern day organizations.
There must be synergies between the various processes and this is where the finance function can play a critical role.
Lest one thinks that the finance function, which is essentially a support function, has to do this all by themselves, it is useful to note that, many contemporary organizations have dedicated project office teams for each division, which perform this function.
In other words, whereas the finance function oversees the organizational processes at a macro level, the project office teams indulge in the same at the micro level. This is the reason why finance and project budgeting and cost control have assumed significance because after all, companies exist to make profits and finance is the lifeblood that determines whether organizations are profitable or failures.
The next role of the finance function is in payroll, claims processing, and acting as the repository of pension schemes and gratuity. If the US follow the 401(k) rule and the finance function manages the defined benefit and defined contribution schemes, in India it is the EPF or the Employee Provident Funds that are managed by the finance function.
Of course, only large organizations have dedicated EPF trusts to take care of these aspects and the norm in most other organizations is to act as facilitators for the EPF scheme with the local or regional PF (Provident Fund) commissioner.
The third aspect of the role of the finance function is to manage the taxes and their collection at source from the employees. Whereas in the US, TDS or Tax Deduction at Source works differently from other countries, in India and much of the Western world, it is mandatory for organizations to deduct tax at source from the employees commensurate with their pay and benefits.
The finance function also has to coordinate with the tax authorities and hand out the annual tax statements that form the basis of the employee’s tax returns. Often, this is a sensitive and critical process since the tax rules mandate very strict principles for generating the tax statements.
We have discussed the pension fund management and the tax deduction. The other role of the finance function is to process payroll and associated benefits in time and in tune with the regulatory requirements.
Claims made by the employees with respect to medical, and transport allowances have to be processed by the finance function. Often, many organizations automate this routine activity wherein the use of ERP (Enterprise Resource Planning) software and financial workflow automation software make the job and the task of claims processing easier.
Having said that, it must be remembered that the finance function has to do its due diligence on the claims being submitted to ensure that bogus claims and suspicious activities are found out and stopped. This is the reason why many organizations have experienced chartered accountants and financial professionals in charge of the finance function so that these aspects can be managed professionally and in a trustworthy manner.
The key aspect here is that the finance function must be headed by persons of high integrity and trust that the management reposes in them must not be misused.
In conclusion, the finance function though a non-core process in many organizations has come to occupy a place of prominence because of these aspects.
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