Finance and Administration is more than the sum of it’s parts. This article explains why.
In most companies, the term “administration” applies to departments that play a supporting role for operational teams. Administrative departments include human resources (HR), public relations (PR), corporate development and strategy (CD&S), and of course, finance.
The reason we call them “supporting” is that, without them, the company will still produce and deliver its product or service (though it will probably run into regulatory problems). However, without operational, teams such as sales and production, the company ceases to generate revenue. (Regarding roles important to AnalystAnswers.com, financial analysis is a supporting role, whereas business analysis is an operational role, and data analysis can be both.)
Companies with heavy administrative work (normally big companies) develop their administrative teams as they grow and build resources. Those with smaller administrative workloads (normally smaller companies) often seek out individuals with multiple administrative skills — the so called “Swiss Army Knife” profiles. This is where Finance and Administration as a function and department becomes important.
What is finance and administration?
Finance and Administration has historically been used as a general term for administrative employees. However, in an increasingly digital, competitive, and dynamic market, the term has taken on new meaning.
In short, Finance and Administration (FA) is an intentionally small administrative department made of a few multi-skilled professionals who manage various administrative tasks, such as accounting, financial operations, financial reporting, HR, facility management, thereby allowing the organization to avoid excessive staff costs for multiple admin departments.
Remember: Finance and Administration departments are effective in companies with a relatively small administrative workload. Large companies usually require complete admin departments to handle the heavy workload.
Finance and Administration Department Functions
So what does the FA department actually do? Here’s a list of common roles. The scope of this list helps us conceptualize just how multitalented FA professionals are:
- Financial Analysis and Forecasting
- Accounts payable
- Accounts receivable
- Human resources
- Facilities management
- What is it? Budgeting is the creation of spending and earning goals for individual departments. At a deeper level, it involves the creation of target amounts for each cost account on the Profit and loss statement. This includes interest and depreciation expenses. To get those, you have to consult the company’s balance sheet. It gets complicated quickly.
- How hard is it? With good fundamentals in finance, budgeting is not hard, per se. The degree to which the FA professional has clean input data determines the difficulty.
- How much time does it take? Budgeting is most often an exercise in Microsoft Excel or an enterprise resource planning tool. While Excel increases efficiency, budgeting complex account relationships can months of work.
- Financial Analysis and Forecasting.
- What is it? Whereas budgeting is the “creation” of future accounts, financial analysis uses ratios to determine profitability, solvency, and cash flow on current accounts. Forecasting is similar to budgeting, but it aims to show what’s likely to happen in the future, rather than company goals for the future.
- How hard is it? FA&P is more complex than budgeting. It requires a solid foundation in and rapid processing of basic mathematical formulas, as well as some basic statistics.
- How much time does it take? In my experience, standard analyses do not require more than a full time role, unless the company requests a significant amount of ad hoc work on non-financial statement topics, in which case data collection and cleaning consume a lot of time.
- Accounts Payable.
- What is it? Accounts payable is the payment of invoices received from suppliers and partners.
- How hard is it? It doesn’t require any complex analysis, but there is value in delaying payments. This means AP professionals should be skilled at delaying payments as long as possible, since it frees up funds in the present for other uses.
- How much time does it take? AP takes as much time as there are invoices to pay. One invoice on average likely requires 15 minutes of work. In some companies, the number of invoices can be minimal. However, in companies with many suppliers, it can be more than a full time job.
- Accounts Receivable.
- What is is? Accounts receivable is the opposite of accounts payable — the chasing, reception, and encoding of payments that are owed to the company. When you make a sale but the customer waits to pay for the good, you have an account receivable.
- How hard is it? Accounts receivable is probably the easiest item on the list. The hardest part is chasing down those that owe you money.
- How much time does it take? AR takes as much time as there are invoices to collect. One invoice on average probably requires 10 minutes of work.
- What is is? One of the more mundane FA tasks, purchasing consists of placing orders for supplies that the company needs. In most cases, even small companies have special procurement managers for operational purchases, so FA purchases are typically office supplies and one-off purchases such as removing a hazardous tree in the front lawn.
- How hard is it? Purchasing is relatively simple. FAs need simply to understand the requirements for the product or service they buy.
- How much time does it take? Purchasing is either automated or requires few one-off purchases, so it usually requires 1 or 2 hours/week.
- Human Resources.
- What is is? Human resources takes care of the company’s employees. It keeps them informed of all employee-related items such as vacation days, time slips, national holidays, work-related events, and more.
- How hard is it? Human resources requires a significant amount of knowledge around legal and practical issues concerning employee rights. Along with budgeting and financial analysis, it is the most difficult part of the FA job.
- How much time does it take? Human resources consumes many hours. If the team is bigger than 20 people, FA departments typically need one person specializing in HR (though capable of working on other topics as well).
- What is is? Payroll is a task within human resources. If the company is small enough, it may choose to outsource payroll. However, if the company delegates it to FA, the department will need to have one specialist managing payroll alongside human resources. Employees must get paid!
- How hard is it? Payroll is not a hard concept to grasp: everybody needs to be paid. However, it is a zero-tolerance exercise. If you make a mistake, you could have a serious problem regarding employee rights.
- How much time does it take? If payroll is not outsourced, it is a full time job. If it’s partially outsourced, a part-time employee who knows what she’s doing could manage it.
- Facility Management.
- What is it? In a sentence, facility management consists of upkeep of the company’s offices. This could be as simple as ordering office supplies or as complicated as managing the remodeling of the office.
- How hard is it? Ordering supplies is not difficult, but guiding teams in their efforts to remodel an office is no easy task. After being asked what his hardest job was, the office manager of my first job said “remodeling the company bathroom.” Doesn’t sound hard, but it is.
- How much time does it take? Ordering supplies takes a few hours each month, but remodeling is a full time job… or more.
Finance and Administration Manager
Every team has a lead, and finance and administration is no exception. Since the goal of F&A is to keep administrative staff count to a minimum, many departments only have one employee.
However, when workloads increase above his/her capacity, but not enough to require a full team, a F&A manager is needed.
Finance and Administration Managers are rarely hands-off leaders. By necessity, they do a large part of the legwork and delegate specialized tasks, such as payroll or HR questions, to a specialist.
While multitalented by nature, F&A managers need to have a finance background. Good ones often have direct accounting experience and have at least dabbled in financial planning and analysis (FP&A). In addition, they need to be:
Finance and Administration Specialist
A finance and admin specialist reports directly to the F&A manager. She/he usually has extensive experience in a non-finance technical role, such as payroll or HR, yet still has the skills to perform other F&A roles.
The most obvious F&A department construction would consist of an F&A manager, a specialist in payroll/HR, and a specialist in facilities management. These three tasks are significantly different, and very few people the the requisite skills to do all three.
Where do you find F&A departments?
In many cases, F&A departments are simply subsets of larger departments. They don’t always work for an independent company. Here are some example of organizations in which FA departments are useful:
- University departments
- Doctors offices
- Small law firms
- Small government agencies
- Other small companies or branches of larger companies
Finance and Administration vs Financial Administration
The two are not the same! Financial administration sounds like F&A, but it’s actually a general term referring to the management of specific teams within a finance department. Financial administration professionals are specialized in one of many finance functions, including accounting, financial reporting, group controlling, consolidation, financial operations (accounts payable and receivable), or treasury.