Are you into a business or you are thinking of starting one soon? Here is all you need to know about finance which can help you make better decisions for the growth of your business.
WHAT IS FINANCE?
Finance is one of the oldest disciplines in the world and it remains one of the most popular academic subjects because not a single day goes by without us making one financial decision or the other.
Finance is a broad term that describes activities associated with banking, leverage or debt, credit, capital markets, money, and investments. Basically, finance represents money management and the process of acquiring needed funds. Finance also encompasses the oversight, creation, and study of money, banking, credit, investments, assets, and liabilities that make up financial systems.
IMPORTANCE OF FINANCE
Here are five reasons why it’s important for a business to have adequate finances.
1. PROFIT GENERATION
It is often said that “you need money to make money”, and this is true in any business. When you’re starting a new business, you’ll need capital investment to launch your business effectively. However, finance is not only required at the start of a business
Even the most established businesses will rely on finance. Purchasing materials, hiring employees, marketing your business, and developing new products all rely on having adequate funds for investment and will need careful financial management.
If the business does not have sufficient funds, it will struggle to operate and in turn be unable to generate a profit.
2. ENABLES OPERATION
Businesses generate large amounts of turnover every single day, which must be used to pay the bills, invest in business activities, and pay their employees.
If a business does not carefully manage its income and expenditure, as well as monitoring funds, it will become difficult to allocate funds effectively, rendering the business unable to trade.
3. FACILITATE BUSINESS EXPANSION
For a business to be successful, it must continuously grow and expand. This includes the development of new products and expansion into new markets. However, this growth and expansion requires capital to purchase new materials and fund marketing activities.
Without an effective financial structure in place, a business will be unable to grow, leaving the business confined to offering the same products and services to the same markets. Businesses which are unable to expand are at risk of being left behind by competitors and eventually failing.
4. ATTAINMENT OF LONG TERM GOALS
It is essential to have long term goals in any business, providing collaborative targets for all departments to work towards as a united front. However, a business will struggle to achieve its targets without the adequate financial support to do so. For example, the business may require extra funds for product development, marketing or growth.
Investing money into achieving business objectives will allow the organisation to achieve its goals and to improve future financial stability through long term growth.
TYPES OF FINANCE
The finance field includes three main subcategories: personal finance, corporate finance, and public (government) finance.
Personal finance includes the purchasing of financial products such as credit cards, insurance, mortgages, and various types of investments. Banking is also considered a component of personal finance because individuals use checking and savings accounts as well as online or mobile payment services.
Individuals must save for retirement, for example, which requires saving or investing enough money during their working lives to fund their long-term plans. This type of financial management decision falls under personal finance.
Finance is specific to an individual’s situation and activity. Therefore, financial strategies depend largely on the person’s earnings, living requirements, goals, and desires.
Corporate finance refers to the financial activities related to running a corporation, usually with a division or departments set up to oversee those financial activities.
Public finance includes budgeting, taxing, spending and debt-issuance policies that affect how a government pays for the services it provides to the public.
The federal government helps prevent market failure by overseeing the allocation of resources, the distribution of income, and economic stability. Regular funding is secured mostly through taxation. Borrowing from banks, insurance companies, and other nations also helps finance government spending.
In addition to managing money in day-to-day operations, a government body also has social and fiscal responsibilities. A government is expected to ensure adequate social programs for its taxpaying citizens and to maintain a stable economy so that people can save and their money will be safe.
Finance degrees are an excellent choice for students who want to understand and know the world economy functions and what the secrets behind money, investments, and financial independence are.