The function of finance is to manage the flow of funds. It aims to increase the profitability of a business or organization through effective planning and control. Funds are generated, used, and allocated for various operations and projects. Therefore, it is important to effectively utilize them. In addition, finance plays an important role in the acquisition of raw materials, tools, equipment, and technological expertise.
The scale of finance required by a business or organization varies considerably, depending on its nature and size. However, every business or unit needs funds to finance its operations and achieve its goals. The type and source of funds required depends on several factors, including the length of time a business needs the funds. Once this period is established, the method of financing is determined.
A business or organization may have several departments. However, finance is often the most important department, as its function is to ensure that money is invested in the most effective manner possible. Finance ensures that money is used wisely and that the best financial products are incorporated into the business plan. Without a properly functioning finance department, the sales team may be working around the clock to increase revenue, but the company might not be putting money to good use.
Finance includes various activities, including buying and selling of assets, taking loans, managing accounts, investing, and creating budgets. These activities require special analytical skills, including the ability to analyze the legal aspects of various securities, assess the risk associated with each investment proposal, and forecast the market position of those securities. Finance plays an important role in the lives of the public.
Public finance is the management of a country’s revenue, expenditure, and debt burden. It focuses on ensuring a balance between risk and opportunity while raising the value of a company. Public finance, on the other hand, deals with money needed by the government. Public finance involves taxes, debt issuance, government spending, and investment decisions. It is an essential part of any business or organization.
Long-term finance deals with funding fixed assets and working capital. Long-term finance sources are shares. These shares can be either preference or equity. The purpose of long-term finance is to meet the financial needs of the public. Traditionally, shares have been the main source of long-term finance for businesses. Various sources of funding are available to organizations for medium-term investments, such as lease finance, hire purchase, and venture capital.
The finance manager of a business determines which investment proposal will generate the most revenues. Different investment projects carry different risks and financial institutions should consider the earning prospects of each project. Investing in a trading company is risk free, but investing in a public utility concern relies on issuing debt, which is a major risk.
Financial planning enables growth and expansion programs. With effective financial planning, companies can introduce new products and technologies. This helps them save costs and improve their market reach. Without adequate planning, businesses are hindered by uncertainty, which can prevent them from achieving their goals.
