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The importance of finance at any business January 9, 2017

The importance of finance at any business

What is finance?

Finance is an expansive term that describes two activities which are how money is managed and the actual process of acquiring the funds. Individuals, governments and businesses need funds to operate, this is usually separated in three categories such as personal finance, corporate finance and public finance.

An organisation relies heavily on business finance to make sure that the company runs successfully, it is impossible to achieve any long term or short term goals without managing the finance. There needs to be funds for the business to grow, to beat market competition, keep the business afloat and maintain their customer base. You can risk everything if your finances are not under your control, you will need adequate insurance and internal controls if your business is to be successful. You can get insurance for business liabilities, accident claims and to protect your finances.

Importance of financial planning

  • Cash flow needs to be monitored effectively by watching the spending patterns and expenses. When you are planning financially you need plan your tax and careful budgeting so you keep your hard earned cash.
  • Improved financial understanding can be achieved when realistic financial goals are set, the results reviewed and the effects of your decision on the business. This will give you a whole new outlook on your budget and financial lifestyle.
  • Capital within is important, an increase in cash flow could lead to an increase in capital. When capital has been increased this will give you an opportunity to invest in different businesses.
  • It is best to have a sound financial plan which reflects your personal circumstances and objectives. The plan guides you to pick the best investment that is right for you and your long term business goals.
  • When you are financial planning it is imperative you consult with a financial advisor that has current knowledge that they can guide you throughout your business. The financial advisor will meet with you on a regular basis and assess the current business status.
  • When running a business, assets are a nice cushion which is very desirable; in case your business runs into some liabilities you can cancel them by using your assets.

Corporate finance

Corporate finance is the area in which monetary decisions are made within the business, they use tools and analyse every decision that is made. The first goal of corporate finance is to make sure that shareholders get maximum value. Corporate finance can be divided into long term and short term decisions, capital investment decision are made to see which projects should receive the money. Corporate finance also deals with equity, debt and whether to pay shareholders or dividends. Short term decisions deal with balance of current assets and any liabilities, the focus is on managing cash flow, short term lending and borrowing and managing a business inventory.

You can learn more at one of our finance courses in London, we offer an Essentials of Business Finance course. This course helps individuals to understand the importance of finance in a thriving business.

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