Today, finance passes through every part of a firm’s operation. Accounting is keeping scores of company’s daily activity, however what brings up the business to life what we call finance. In every decision been made, there must be a financial consideration.
Finance is the sensitive part in every business decision made today, from budgeting and planning and cash flow management to the capital structure and how to minimize risks and cost.
Strategic planning and budgeting
You can’t start traveling with your family without having an idea of how the map of your destination looks like, would you? This is applicable to your business. You are responsible to define where your business is going to, identify the objectives and lastly ask the financial management how much it will cost to get the destination.
Equity or loan?
After plans are made, the finance helps in funding the company’s operations. In most cases, its advisable to raise more funds from investors or get a reasonable amount of loan from lenders.
Cash flow management
This talks about who is responsible in keeping the cash? The finance people does the job of keeping cash. Usually, small business owners will want to be conscious of how the cash in the bank account grows, the job of the financial managers to ensure that the business generate enough funds to pay their employees when necessary, but when the cash is getting tight, the people in the financial managers will use the firm’s bank line for credit.
Profit planning and cost controls
The primary aim of a business Is to generate profit, these is the period where finance plays it major roles by finding ways to grow the business profit. the determination of the profit of an individual product comes in by extracting the loser and upgrading the winner.
Finance has the ability to point out manners to improve productivity in manufacturing or finding a cheaper source of materials.
Small scale business owner are always looking into the financial statement, to identify which expenses which is not in line with the budget to be extracted. However, if everything is in line with its budget, then no issue but if it’s not, then they seek the attention of the manager to insert correction.
Managing unavoidable risks
This has to do with the management of business risk, in this case, an owner has concern about the direction of interest rates, changes in commodity prices, currency fluctuation and rick that customers will not pay their invoice. Financial report covers these areas and present reports to owners or managers.
However, financial management analyze s the risk of global markets, goes through the terms of loans from lenders if available, checks credit standing of customer, and also make provision of an assessment of the perils present in the areas. By this process, finance helps to reduce hazards.
The role of finance in business is undoubtedly indispensable, business owners are found of using financial data every day when they are in the process of making decisions. They make use of finance to aid them easily projects the future. In other words, companies won’t find it easy to operate without financial analysis.