Finance is the life blood of business explain how

June 18, 2021

Table of Contents

Finance basics are the foundation of the success of all types of economic activities. It is an important resource that provides access to all activity in a business entity. From manufacturing, employers, to merchandising activities. The success of every organization is dependent on how its finance is managed. It’s no doubt organizations cannot fruition without proper financial resources. This is what makes finance the lifeblood of every business.

Finance department

Finance is the process of managing and raising funds to meet business needs. Every business organization needs a finance manager and a finance department. The finance manager is responsible for business finances making sure the business is healthy and functioning well. They help organizations make the best decisions on working capital and investing in the appropriate avenue to generate a fruitful return. Research has shown that a finance manager is one of the most important foundations of a successful business.

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The finance department is one of the most important and most functional departments in a business organization. It can be likened to the function of the heart in the human body. The heart is responsible for pumping oxygenated blood to other parts of the body. of the organization.

The same is the function of the finance department of an organization. It is responsible for identifying the organization’s financial needs and supplying necessary finance to other departments in the organization at the right time. Without it, the organization will sink.

financial management

Financial management is the planning, organization, and coordination of the financial resources of a business organization. It is handled by the financial department of every organization. Every organization that uses finance needs financial management no matter its size, shape, or niche. Financial management helps the organization to utilize its funds in the best and most profitable way.

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Objectives of financial management

Finance management helps business organizations maximize its finance to stay longer in business. Business organizations must understand the objectives of financial management for them to achieve this and also make wise decisions. The objectives of financial management provide a framework for better financial decisions made by business organizations.

Proper control of business finance

The financial department and finance manager are responsible for planning, procuring, and controlling organization finances. They achieve this through many techniques. This includes cost and profit control, analysis, financial forecast, and many more. They also make decisions concerning cash management and distribute finance properly to every department in the organisation. This increases business efficiency and revenue.

Proper utilization of business profit

Every business organization aims to make a profit. The revenue generated by the business shows its efficiency and stability. This is why proper utilization of business profit is very important.

The work of the financial department is to help the organization achieve maximum short-term and long profit. Business finance must be used perfectly and must not be used for unprofitable projects. Although this is not guaranteed, it can be achieved by making proper use of the organization’s finances. Also by

taking proper financial decisions with the help of the financial manager.

Establishment of Financial requirements

Establishing a proper finance requirement is vital in every business. The finance department is responsible for establishing the business finance requirements and establishing the total amount needed to start and run the business. Many businesses often collapse because they do not separate the fixed capital requirements from the working capital.

Therefore, there should be a balance and the department should also put many factors into consideration when making financial decisions. This includes the company’s scale of operation, the technology used by the company, legal requirements, numbers of employees, and many more.

Cash flow maintenance

One of the objectives of financial management is maintaining the cash flow of the business. They make sure the company has proper finance to pay for the day-to-day expenses of the business. These include employee’s salaries, repair costs, purchase of raw materials, and many more.

Companies with good cash flow have the advantages of doing large-scale purchases and also getting huge discounts when purchasing their raw materials. Additionally, a good cash flow improves business success, increases stability and longevity.

Financial discipline and capital structure

The department of finance creates a financial structure for the business organization. This helps the company know the difference between owned finance and borrowed finance. It also brings balance to business finance by differentiating the profitable and unprofitable capital sources. This helps the business to only invest in a profitable and productive area which brings them high returns. Both finance discipline and structure is neck for company’s stability, flexibility, and liquidity.

The bottom line

Financial management is an important factor in every business. The financial department uses the financial ratio to evaluate the financial condition of a business organization and come up with ideas to make it better and more profitable.