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Understanding the importance of finance at any business February 15, 2018

Understanding the importance of finance at any business

The aim of any successful business is to either sell a product or service to make a profit. Finance helps with the formation of new businesses and allows businesses to take advantage of all the new opportunities to grow. The finance function of the business is there to achieve a legible business support service, lower the costs and have effective control of the environment. Money is usually the lifeline of any business and the finance is similar to a nerve centre.

What is the role of finance in any business?

  • When you are budgeting and forecasting they usually relate to the business to the outside community so they can see transparency. Stock prices are usually driven by earnings and growth estimates, the stock prices heavily rely on the timely manner that the forecasting is completed. This applies to small businesses as well though they are not publically traded, they will need to provide this information to their investors to ensure everyone is on the same page.
  • Payable and receivable reports are important within a business, they manage all the cash flow into and out of a business. Vendors and creditors need payment on time to ensure that everything runs smoothly in the business. There needs to be correct amounts of cash on hand and an updated payment plan to ensure everything is running correctly. The finance team usually have completed some aspect of the finance training or accounting training to help them understand the importance of finance further.
  • Most companies have shareholders and outside financing which require them to provide reports on a regular basis. These external reports focus on how the different shareholders are related to the organisation. The stockholders rely on these report regularly because they get an insight into how well their money is doing.

Why do businesses require finance?

  • One of the main reason businesses require finance is to keep up their working capital as the company is making money. A business can be in big trouble if they don’t have enough working capital. Many businesses apply for external funding to enable them to fulfil their growth ambitions. A short term loan might also be taken out to bridge the gap between payments that need to go out and payment that are coming in.
  • Finance can be acquired when starting up a new business and getting it off the ground. Some directors will use their own money but some do take up a “start a business loan” to ensure that they can pay for initial costs such as training for staff, staff salaries and money for products.
  • Taking out finance to purchase new assets for a growing company is perfectly normal and all big companies do this. The company might have enough cash to cover working capital expenses but not enough for new assets. This can be purchasing anything from new vehicles, IT equipment or even new machinery. Without finance this wouldn’t be possible.

Finance accounting courses are very important if you are looking to get into the finance team or starting up a new business and need more information on the importance of finance.

Need help with finance training? Why not learn more at one of our financial accounting courses in London.

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