Why is Finance important ?

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In a business or in the daily life in one way or the other you’ll get in touch with finance

An old saying goes like this :

It takes money to make money !!!

What does this mean ? Finance is involved at least in the following business critical topics :

Starting capital 

Every new venture needs seed money. Entrepreneurs only have dreams and ideas until they have some capital to put their ideas in motion. Whether it’s a product or service, you will need a way to create and deliver it — as well as enough money and time to lay the groundwork of selling and establishing important relationships. Most business owners face the critical choice between debt and equity financing.[1]

Debt ratios

Finances are about more than money in your hand. While most businesses have some amount of debt — especially in the beginning stages — too much debt compared with revenues and assets can leave your with more problems than making your loan payments.[1]

Business cycles

No matter how well your business is doing, you have to prepare for rainy days and even storms. Business and economic cycles bring dark clouds you can’t predict. That’s why smart businesses create financial plans for downturns.[1]

Growth 

Success can bring a business to a difficult crossroads. Sometimes to take on more business and attain greater success, a company needs significant financial investment to acquire new new capital, staff or inventory. When business managers hit this juncture, they have to wade through their financial options, which may involve infusions of equity capitals — perhaps from venture capitalists.[1]

Payroll

Nothing spells imminent death like a company being unable to make payroll. Even the most dedicated staff won’t stick around long once the paychecks stop. The larger an organisation gets, the larger the labour costs. Above all, companies have to ensure they have enough cash on hand to make payroll for at least two payroll cycles ahead — if not more[1]

The goal of any finance function is to achieve three benefits: business support service, lowest costs and effective control of the environment. Money is the lifeblood of a business and finance is the nerve centre. Finance is required to promote or create a business, gain assets, develop products, run market surveys, advertise. The conventional view of finances focuses on being reactive, efficient, quantitative and risk averse. New innovative views focus on being vision-oriented, opportunity and growth focused, intuitive and risk-taking.[2]

Managerial finance concerns itself with the managerial significance of finance. It is focused on assessment rather than technique. For instance, in reviewing an annual report, one concerned with technique would be primarily interested in measurement. A person working in managerial finance would be interested in the significance of a firm’s financial figures measured against multiple targets such as internal goals and competitor figures.

Sound financial management creates value and organisational ability through the allocation of scarce resources amongst competing business opportunities. It is an aid to the implementation and monitoring of business strategies and helps achieve business objectives.

Corporate Finance

Corporate finance is the area of finance dealing with monetary decisions that business enterprises make and the tools and analysis used to make those decisions. The primary goal of corporate finance is to maximise shareholder value. Although it is in principle different from managerial finance, which studies the financial decisions of all firms, rather than corporations alone, the main concepts in the study of corporate finance are applicable to financial problems of all kinds of firms.

The discipline can be divided into long-term and short-term decisions and techniques. Capital investment decisions are long-term choices about which projects receive investment, whether to finance that investment with equity or debt, and when or whether to pay dividends to shareholders. On the other hand, short-term decisions deal with the short-term balance of current assets and current liabilities; the focus here is on managing cash, inventories, short-term borrowing, and lending (such as the terms on credit extended to customers).

The terms corporate finance and corporate financier are also associated with investment banking. The typical role of an investment bank is to evaluate the company’s financial needs and raise the appropriate type of capital that best fits those needs. Thus, the terms “corporate finance” and “corporate financier” may be associated with transactions in which capital is raised in order to create, develop, grow, or acquire businesses.

To wrap it up we can easily say the finance is important regardless of the company size, business type and business complexity. Also in the daily life , non business related we have to deal and to face simplified financial processes and topics to manage the ongoing issues.  At least for the reasons mentioned above we can  say that finance is of utmost importance.

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Reference

[1] http://smallbusiness.chron.com/importance-business-finance-4109.html

[2] http://smallbusiness.chron.com/role-finance-business-290.html