Importance of Finance

people, business, finances and money concept - close up of businessman hands holding open wallet with dollar cash

Finance is the field of study investments both the assets and the liabilities within a given time with a degrees of business risk experienced. Finance is crucial in the management of the business and aims in valuing the assets according to the risk experienced and their calculated rate of return. It’s grouped into three categories:-

  • Managerial finance It focuses on the assessment rather than the process of managing the business finances. • – Corporate finance

Deals mainly with the monetary decisions that businesses implement and the tools they use to implement them.

  • Personal finance

Financial management aims in saving and aids in spending the monetary resources over time for an individual.

The sources of finance include; loans from banks, investor finances etc.

The importance of finance is crucial and of great importance to the company as it projects how the business is viable in relation to the balancing of the profits and the expenses. The importance are summarized below;

Maintaining the financial records of the business

Finance helps the firm’s management team to maintain the sales figures and the filling records of the spending (expenses) for future reference and also the figures and records are used by other entities/ department in the firm and also to secure loans when the lending institutions demand for the financial records to determine if the firm is of sound financial position.

 Planning of the internal financial information

Finance helps the management team of the firm to analyze the plan of the business in terms of spending trends in the firm such as automotive repair, procurement of the firm’s equipment, miscellaneous expenses etc. and if the results are overwhelming the managements takes corrective actions to increase profits by reducing the spending.

Preparation of the financial accounts

Finance helps the accountants in the firm to prepare the profit and loss account and the statement of position intruder to know how the firm in terms of profit or loss and also help the managerial team to make decisions based on the statement of position and statement of performance.

Analyzing the current business position

Finance has helped the management of the business to analyze how the business is doing in terms of operation, financial position and also expenses the business is experiencing using ratio analysis tools.

 Paying the creditors

Finance helps the company to be able to pay back finances that where acquired from long term and short term liability sources such as the banks and also lending institutions. It helps the company to meet this needs in order to secure the collateral that was held by the lenders until the business is able to fulfill the contractual agreement that was made.

Paying the salaries and wages to the employees of the company

Finance helps the company to functionally operate the payroll system to pay out the salaries and wages to its employees to be able to meet their needs to motivate them work harder in the business to improve the financial performance of the business.

In the long run we can see that finance is an important aspect in a business as it aims in maximizing the profits for the business.