Career Overview: Corporate Finance
It's a blast of the obvious that companies make money. Some of them make a lot of money. Of course, someone has to manage that money or else the company doesn't stay in business very long. That's where the corporate finance team comes in. In corporate finance, you'll deal with the financial decisions made by the company you work for, with the goal of maximizing the value of the corporation while minimizing risk.
Corporate finance and accounting professionals are responsible for managing a business's money-forecasting where it will come from, knowing where it is, and helping its managers decide how to spend it in ways that will ensure the greatest return. They pore over spreadsheets that detail cash flow, profitability, and expenses. They look for ways to free up capital, increase profitability, and decrease expenses. If any department wants to make a big expenditure, it's usually got to be run by the folks in finance first to ensure that the company is in a position to fork over the dough. They'll look at the best growth path for the company, whether that's through acquiring other companies or re-investing in the business to expand internally.
A company's size, complexity, industry, and stage of development-for example, whether it's a startup or established business-determine its corporate finance department's specific responsibilities. All companies need to balance their books. But some large technology companies, for example, also need to hire financial experts to valuate potential acquisitions. Others (e.g., insurance companies) have hundreds of millions of dollars to invest and need financial wizards to manage that money. Note that for the purposes of this career profile, "corporate finance" does not refer to those in investment banks who help their corporate clients raise funds. To learn about this and other areas in financial services, read WetFeet's industry profiles of investment banking, mutual funds and brokerage, commercial banking, insurance, and accounting. These profiles detail a variety of specialized financial functions beyond those in private industry.
What You'll Do
Corporate finance includes two key functions: accounting and finance. Accounting concerns itself with day-to-day operations. Accountants balance the books, track expenses and revenue, execute payroll, and pay the bills. They also compile all the financial data needed to issue a company's financial statements in accordance with government regulations.
Finance professionals analyze revenue and expenses to ensure effective use of capital. They also advise businesses about project costs, make capital investments, and structure deals to help companies grow.
In spite of their different roles, finance and accounting are joined at the hip: The higher levels of accounting (budgeting and analysis) blend with financial functions (analysis and projections). Thus, finance and accounting are often treated as one, with different divisions undertaking particular tasks, such as cash management or taxes.Requirements
Finance and accounting jobs require strong analytical and quantitative skills. If you have a knack for using numbers to understand patterns that influence business, you'll be of great value to your employer. If you can't crunch and analyze numbers, this isn't going to be the right job for you. You should also enjoy and excel at solving problems and be able to think critically about the numbers you're working with. Think of it as cracking a code: You need to take all of these numbers-income, expenses, profits, investments, cash flow-and decipher them in order to make the best decisions for the company.
To succeed in these careers, you need a strong attention to detail. To make wise business decisions, your employer will be depending on you to get the numbers right-every time. In order to do that, you'll also need to have an understanding of and interest in business. That includes reading industry and business publications to understand market conditions, economic forecasts, and trends. Finance professionals need to look at external factors that could potentially help or hurt profitability. This may be the career for you if you can effectively evaluate business scenarios and recommend a course of action based on quantitative research. If you're in college and want to work in corporate finance, your best bet is to demonstrate your interest in finance with relevant undergraduate courses in accounting, finance, and economics. Get involved in business, accounting, or investing clubs on campus. Internships are always a great way to strengthen your resume and differentiate yourself from other candidates. An MBA will make you attractive to companies hiring for budgeting, planning, and strategy functions.
Many firms hire outstanding undergraduates and MBAs for training programs; some programs are finance- and accounting-specific, and others rotate trainees throughout the company. If you have your heart set on corporate finance and analysis, do a knockout job during that particular rotation and develop a good relationship with your manager.
If there is no formal finance or accounting program at your company, you'll have to make the most of on-the-job training, so try to find a position that will expose you to a variety of projects. Find out what the career path in corporate finance is at your company and cultivate a mentor. A mentor can explain what projects will round out your background and what courses you can take to prepare yourself for a higher-level assignment. You can also check out job listings on the Web to see what kind of experience and certification are required for the jobs you're interested.
If you want to pursue a lifelong career as a number-cruncher, you'll probably have to knuckle down and get an advanced degree or certification-a CPA, MBA, or CFA, depending on the career-at least to work in the more senior budgeting, planning, and strategy functions. You'll also need to keep track of the regulatory changes that affect how information is reported.
There are other ways to get your foot in the door in a corporate finance career. Experience with an investment banking firm can lead to a financial analysis position for a specific business line or to a corporate development position if you have several years of experience. At the higher levels in accounting, one of the most straightforward routes to becoming a controller (a supervisory accounting role) is to start working for one of the large accounting or auditing firms and then go into corporate finance. The largest accounting firms and investment banks hire BAs directly from school.Job Outlook
The outlook for folks in corporate finance and in-house accounting is bright. In spite of the credit crunch that took hold in summer 2007, putting a damper on mergers and acquisitions, the market for money has continued to loosen. That means more corporate spending, more mergers and acquisitions, and so on-and more work for corporate finance types.
Longer term, globalization means more opportunities for sophisticated financial analysts and planners. Increased merger and acquisition activity will create more opportunities for people in finance who are able to think strategically. This means a greater demand for people with higher degrees who can develop more theoretical financial models, develop currency hedges, or estimate another company's future earnings and current value.
As more and more accounting functions become automated by software, those accountants and financial analysts able to do analytical work and think strategically will have much better prospects than those who stick to keeping the books. Graduate degrees, extensive analytical experience, and good regulatory knowledge will help keep you employed over the long term.Career Tracks
Although conditions vary at different companies, people going into corporate finance generally start their careers either as staff accountants (for the corporate reporting function) or as financial analysts (for a business group or function). In both roles, you'll supply management with the information it needs to make smart, opportune decisions.
Staff accountants consolidate information for the official corporate financial reports-primarily comparing the present to the past. Financial analysts, on the other hand, are assigned to either a product line or business unit. They help management set up profit objectives, analyze current unit results, and anticipate future financial performance. Over time, financial analysts and staff accountants eventually specialize in one of the areas described below.
General accountants are responsible for producing all of the financial records a corporation uses to track its progress internally and to meet government regulations. Such workers also gather all the information needed to compute a company's balance sheet, profit and loss statements, and income statements. They also track the corporate budget, cash flow, and pay all the bills.
Usually, your first job in general accounting will be in accounts payable or accounts receivable. Success in accounting might lead you to a position as a controller, overseeing a larger group, aggregating information, or working on portions of the corporate budget.
When most people think of an audit, they think of an outside audit-a large accounting firm like Ernst & Young checking the corporate books on behalf of the shareholders. However, most large companies have an internal audit group that regularly visits individual company branches and checks the company's accounting systems.
Internal auditors perform the investigative and corrective work that ensures the external auditors don't find anything. The internal audit group reviews the quality of the data, making sure it's both accurate and complete. They also evaluate whether the corporate accounting procedures are effective and universally followed. Finally, internal auditors introduce or revise procedures to improve efficiency and reduce costs.
Divisional Financial Services
In this area, you work with each division's business team to prepare financial plans, make forecasts, and compare actual financial results to forecasts. You may also evaluate the financial consequences of alternative strategies.
Responsibilities include everything from analyzing new business opportunities to restructuring a business or developing a capital spending program. The primary concerns are to find better ways of using company assets, reduce costs, and research better methods of forecasting. Financial services evaluates the risks versus potential return of any course of action and develops recommendations so that managers can pick the most profitable strategies, depending on their goals.
Activities in this area involve administering taxes (i.e., paying taxes on time-or finding loopholes to avoid paying them) and determining how to decrease the company's tax burden. Responsibilities include working with attorneys on tax litigation, researching tax laws and reporting requirements by nation (if the company is international), and keeping up with new government rules and regulations.
Large companies have an entire department dedicated to recommending methods to minimize the tax impact of any business decision such as a new division launch, a capital spending plan, or purchasing a new company. Investments and pensions also need to be managed with an eye toward minimizing taxes. The tax department helps structure transactions, makes recommendations on the timing of acquisitions or sales based on what else will be written off that year, and can decide what corporate reporting structure reduces taxes-for example, creating a wholly owned subsidiary versus having an internal division.
The treasury department is responsible for all of a company's financing and investing activities. This department works with investment bankers who help the corporation raise capital with stock or bond sales or expand through mergers and acquisitions. Treasury also manages the pension fund and the corporation's investments in other companies. The department also handles risk management, making sure that the right steps are taken to safeguard corporate assets by using insurance policies or currency hedges.
This is a company's piggy bank. The cash management group makes sure the company has enough cash on hand to meet its daily needs. The group also sees to it that any excess cash is invested overnight by picking the best short-term investment options. And it negotiates with local banks to get regional business units the banking services they need at the best price.
Corporate Development and Strategic Planning
Corporate development involves both corporate finance and business development. (For more on these types of jobs, check out WetFeet's business development career profile.) Finance experts in corporate development study acquisition targets, investment options, and licensing deals. Often they assess the best firms to buy or invest in, such as pre-IPO cutting-edge technology companies with complementary products that could either extend the company's product line or mitigate competition.