Finance’s Role in a Business

by Muhammad Inam Ul Haq
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Accounting is the way to hold a company’s operations score, but financing brings a company to life. Finance passes through every aspect of the activities of a company. Without feedback from the people in financial services, few decisions are ever made.

Tip

In just about any business decision, from planning and budgeting and cash flow management to the structure of resources and how you control risks and costs, finance is important.

Strategic Budgeting and Planning

You’re not going to put the family in a car and go on a holiday without getting a map of your destination, are you? With your business, it is the same. You determine where you want the organization to go, decide the priorities, and then ask the financial people how much it’s going to cost to get there. These strategies form the basis for employee recruiting, capital investment, capital raising, marketing campaigns, and management incentives.

Equity or Credit?

After the strategic plan is developed, the finances turn to the methods of financing the activities of a business. Is it easier to collect more investor equity capital or take out lenders’ loans? The response to this question is given in the financial report.

Control of Cash Flow

Who keeps up with that cash? The people of finance are. A small business owner still needs to know how much cash there is in the bank account of the company. Financial executives are accountable for ensuring that the company has enough resources to pay its suppliers and staff on time. The individuals in finance will make plans to use the bank line of credit of the company if cash is getting close.

Conversely, it is a drain on the return on investment of a business to have surplus cash sitting idle in a bank account. This condition will be defined by financial analysis and will identify investments that yield a better return.

Planning For Sales and Cost Reductions

It only makes sense that finance will play a major role in seeking ways to increase profitability because the basis of a company is to make a profit. This could enable the viability of individual goods to be calculated, and the losers weeded out and the winners promoted. Finance might point out ways of enhancing manufacturing efficiency or seeking cheaper material sources.

Small business owners check their financial statements regularly, watching for any expenditures that unexpectedly get out of line with the budgets. This is financial governance by exception. Suppose it’s all in line with the strategy for a benefit, no problem. If not, then the attention of managers is required to correct the deviations.

Managing Imminent Risks

It is risky to manage a company, right? An owner is worried about the trajectory of interest rates, currency fluctuations, shifts in commodity prices, and the risks of not paying invoices to his customers. Financial reports track these areas and provide owners and managers with reports.

Financial management analyses the risks of foreign markets tests customers’ credit status, analyses the conditions of lenders’ loans and offers an overview of the risks in these areas. Nothing is really for sure, and finance helps to bring the uncertainties into perspective.

In business, the position of finance is indispensable. Company owners, when making decisions, use financial data every day. To analyze the current and to prepare for the future, they use finance. Without the advantages of financial analysis, businesses cannot work.

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