How to build a company's financial structure and prepare for process automation
A financial structure is an organization of financial responsibility centers (CFR). It defines their subordination, authority, responsibility and is designed to manage the cost of the enterprise.
The financial structure is most often superimposed on the organizational structure of the company. But it creates four centers of financial responsibility in the areas of business. After the decision on the development of directions has been made, the corresponding divisions are created.
Types of Financial Responsibility Centers
Financial Responsibility Center is a structural unit, or a part of it, that performs certain business operations. Within its framework, the work of managers (leaders) is evaluated and monitored.
Financial responsibility centers are called by different names: financial accounting centers, profit centers. But, regardless of the name adopted in the company, their essence is in the list of business transactions, the degree of financial independence, separation from others in accounting, planning, and obtaining results. Types of CFD:
Investment centers are the top level of the financial structure. They manage not only working capital, but also non-current assets (fixed assets), including investments.
Profit Centers. The amount of profit is the income and costs of not one direction, but the entire enterprise as a whole. If we are talking about one enterprise, then at these centers the system of financial responsibility ends.
Margin Income Centers. Responsible for the efficiency of activities, controlling the income and expenditure side of their direction in terms of covering direct costs associated with the activities of the direction (business direction). It is a stand-alone production unit that has both costs and production costs. Basically, the commercial director who supervises the production is the head of the profit margin center. The production man himself is a cost center that can be part of a margin center. The same goes for the sales department.
Income Centers. Responsible for the revenue side of the budget: the sale of finished products, goods and services, that is, revenue (sales department, wholesale base, network). For example, in sales departments they do not pay attention to the cost of goods, but work within the framework of the regulations given to them. And the head of the department is not interested in how the cost of the product was formed, its prime cost, the margin of the business, what amount can be sacrificed. Its task is the volume of income and discounts.
Cost Centers. They only consume resources. These are production units and functional services (workshop, warehouse, accounting, advertising and marketing, security). They are the lowest level of the CFD, which most often appears explicitly in operating activities (overhead costs and general business results).
Financial responsibility centers need to be structured within the sections of the profit and loss statement (now called the statement of financial results in accounting).
Issues covered in the material:
- What is the financial structure of the company?
- How to prepare for the formation of the financial structure of the enterprise?
- How to build the financial structure of the enterprise? li >
- What tools to use to automate the management of the financial structure of an enterprise?
Sometimes enterprises have an acute need to streamline management processes, form a planning system and track results. Then you cannot do without a management accounting and budgeting system. Since its basis is the financial structure, further we will talk about how to build the financial structure of the company.
What is the financial structure of the company
A financial structure is a hierarchical system of centers of financial responsibility. This approach to the work of the enterprise allows you to create a strict procedure for obtaining financial results and sharing responsibility for certain results of work.
Thanks to structuring, it becomes possible to maintain internal accounting policies, track the movement of resources within the company, assess the effectiveness of the business, as well as its elements. Simply put, the financial structure gives the management the ability to understand who and for what processes to ask, allows you to control the work of departments. Also, this method of work is necessary to effectively motivate staff.
In the picture below, you can see the basic types of financial responsibility centers, whose main characteristic is the achieved targets.
Below you can see the key factors of the financial structure of the company, which contribute to effective work, and the directions of its use:
Usually talk about five types of CFD, these are centers:
- investment ;
- profit ;
- margin income;
Apart from them, it is worth mentioning separately about:
Terms used in this document
Budgeting (budgetary management) is a management system of the Enterprise by responsibility centers through budgets, which allows to achieve the set goals through the most efficient use of resources.
An enterprise's budget is a plan drawn up for a certain period of time in physical and monetary terms and determining the enterprise's need for the resources necessary to obtain the planned income.
Budget - indicators of economic activity grouped according to the criteria adopted at the enterprise.
Budget structure - a hierarchy of operational, functional and final budgets of an enterprise.
Procedure (control procedure) is an ordered sequence of interrelated actions of several performers that occur within a certain period of time and have a cognizable result.
Process () is a purposeful sequence of procedures aimed at obtaining a given end result. A mandatory requirement for the allocated is the presence of a complete production cycle (from the relationship with the external environment regarding the initiation of the production of a product to the relationship regarding its transfer to the client).
The financial structure of an enterprise is a hierarchy of financial responsibility centers that interact with each other through budgets.
Financial Responsibility Center (CFR) is a structural unit (or a group of units) that carries out a certain set of business operations that can have a direct impact on expenses and / or income from this activity, and, accordingly, is responsible for these items expenses and / or income.
The Financial Accounting Center (CFU) is a structural unit that keeps records of the indicators of income and / or expenses established for it, but is not responsible for their value.
A cost center is a structural unit responsible only for costs incurred.
Revenue Center - a structural unit responsible for the income that it brings to the company through its activities.
Drawing up a business plan is what a future entrepreneur should do at the stage of planning his business in order to calculate how much money is needed to start, what is the approximate profitability of the business and what kind of profit can be expected approximately.
The financial plan of the business plan is perhaps the most important part of the document, since the effectiveness of the business largely depends on the accuracy of the calculations. Therefore, further we will consider in detail what financial models are, what is the structure of such a document, how to draw it up correctly.
Features of different financial models
In business, the term "financial model" has been used quite actively lately, since it allows you to clearly show the economics of the project, its profitability. In other words, financial modeling allows you to assess the effectiveness of a project and understand whether it is worth investing money there or not.
The classification of models implies their division into 2 large groups:
- For strategic decisions - such models are created to predict the profitability of investment projects, determine the value of a business, develop microeconomic forecasts, and similar operations.
- For making tactical or operational decisions - changing the motivating part, purchasing, introducing optimization processes for certain lines of business, and so on.
What is the financial part of a business plan?
The financial plan of the business plan is the part of the document that reflects all the numbers of the business, its profitability, development priorities and start-up costs. That is, everything that can be analyzed in business in terms of numbers and the amount of money - invested and earned.
The main purpose of the financial part of a business plan is to control the balance between profit and cost, and this, in turn, allows the entrepreneur to "keep his finger on the pulse."
The financial part of the business plan must contain the following:
- Investment options and how profitable they will be. If, of course, investment will take place.
- Start-up costs - start-up capital and monthly costs.
- List of all expenses - for production, purchase of materials / raw materials, salaries for employees, taxation, and so on.
- Estimated income and profit.
- Payback period.
- How is it supposed to increase income.
- Methods of increasing investment.
- If there was a loan, then its maturity, interest.
- Preliminary analysis of activities for the next 2 years of work.
BDR is not just a report
What is BDR: Income and Expenditure Budget?
This is an economic term that represents a statement of the movement of income and expenses. Any firm should keep records of profits. In a simple sense, this is a document in the form of a table in which all data on the income and expenses of the organization are entered.
The main goal is to plan the company's profit for a certain period of time.
Carrying out such an analysis helps to understand the economic state of the company and what are its future development prospects. The report is compiled on the basis of three criteria - items of income, costs and profits. The profit for the enterprise as a whole is calculated by calculating the difference between all income and all expenses. Often, other types of profit are also distinguished, for example, operating or EBITDA.
The reporting form of this type will allow you to analyze the work of each department, identify lagging and advanced departments. The experience of successful work of one department can be used in other structures as well. Regular generation of the report will allow you to quickly identify shortcomings in the activity and quickly eliminate them. The financial condition of the enterprise must be under constant control of the head. So he will be able to constantly make the right decisions, ensure high profits and avoid bankruptcy.
It is necessary to take into account the specifics of each organization when generating a report. Its main components are revenue and expense items. The composition of articles is individual for each organization.
Every firm is on a course to make a profit.
The standard is ready-to-use reports for various fields of activity. They can be selected to start working with the system. The finished model will only need to make minor adjustments. It is only important to consider that the activity for which the model was drawn up is similar to yours.