INTRODUCTION OF FINANCE
When we talk about the nature of financial management, we can refer to its relationship with the closely related fields of finance and accounting, the functions, importance and objectives.
Finance, the process of raising money or capital for any type of expenditure. Consumers, businesses, and government often do not have enough money to spend, pay their debts, or complete other transactions, so they have to borrow or sell to get the money they need to operate.
WHAT IS FINANCE?
Finance is the life blood of the traditional industrial economy. We cannot think of any establishment coming into being or being successfully carried on and developed without a finance commission. Finance is the pivot around which the whole economic system revolves. The success of any commercial organization is dependent on the adequacy of finance and its effective utilization.
Nowadays good financial management is very crucial for businesses to plan and the nature of capital, the acquisition of capital from varied sources at favorable conditions, and investing the collected capital in various assets etc. The management of a finance company is comparatively easier and limited for private business organizations like sole proprietorship and partnerships, but it is undoubtedly a tough job for bigger organizations like joint stock companies where procurement of ample amounts of money and its effective management are difficult and risky jobs.
TYPES OF FINANCING
Finance can be generally divided into three groups:
- Public finance
- Private finance
- Corporate finance
Public finance -
Public finance, which is also known as public revenue, does not study the finances or money of the public but deals with a financial system of the government.
Revenue can be said to be that field of study that deals with the finance bills by the federal, state, and local government.
Private finance -
Private finance can be further divided into following groups:
- Business Finance, and
- Non-profit earning institutions Finance
Business Finance: Business finance is made up of business, and finance means the human action which is aimed towards earning money. It includes commerce and different types of industries like construction, service, genetics etc.
Non-profit earning institutions Finance: Business finance studies the financial system of the institution established for profit earning motives while, non-profit earning institution finance, as the name suggests, studies financial principles and the behaviour of educational, social, political and religious institutions that do not have the profit motive as an objective.
Corporate finance -
Corporate finance mostly refers to how companies manage or deal with money. The primary objective of corporate finance is to utilize the resources of the company in the best way possible to keep the shareholders pleased.
This involves for instance, identifying where to spend money, determining how the financial structure of the firm should be, and more tax thoughts. Therefore, many out-of- work individuals must learn how to manage and invest their money in order to benefit their companies.
Importance of Finance
Finance in business is significant because by doing so one is able to plan for the future through being able to make sound decisions concerning how to spend the money and where to spend it and that business requires financial capital in order to function and generate profits. Irrespective of the business type, whether it is a service-based business or a product-based business sufficient capital is always required.
It shows that finance is important in the achievement of your short term, mid-term and long-term goals. This is because it assists business organizations to foreground occurrences that are hard to predict, recover from the undesired events, remain focused, and even thrive.
Some important points will make it easy to understand, so let’s see them.
1. Planning for the future:
By managing finances effectively, businesses can budget, set financial goals, and develop strategic plans for growth. It allows them to allocate resources appropriately and make informed decisions about investment and expansion.
2. Smart Investing:
Finance can help businesses to evaluate potential investment opportunities and determine the opportunities that are likely to generate returns.
3. Achieving short-medium and long-term goals:
Finance Business organizations must achieve their goals at different times. Whether saving money for short-term expenses, generating profits in the medium term, or planning for long-term growth and sustainability.
4. Managing Cash Flow:
Managing Cash flow is the lifeline of any business. Finance help in business to effectively monitor and manage cash flow to cover expenses, pay employees, invest in growth, and deal with unexpected events or emergencies.
5. Access to external funding:
Many businesses on external sources of funding, such as loans, grants, or investments, to support their operations or fuel their growth. Finance is help in business to understand their financing options, prepare the financial statements.
History of Finance
Finance has been around for a really long time, even before money as we know it existed. Back in ancient times, people used a system called barter system, where they use to exchange goods or services directly without using money.
Fast forward to the Middle Age and Renaissance period, we saw the rise of banking and finance advisors as we know them today. Merchants and traders started to use banks to keep their money and still make transactions.
In the 17th and 18th centuries, stock market began to develop, allowing people to buy and sell shares in companies. This marked the birth of the modern finance act as we know it today.
In the 20th century, finance became even more complex and sophisticated.
The establishment of central banks, the evolution of various forms of funds such as bonds and derivatives and the emergence and growth of more stock market all over the world helped in shaping the financial structure.
At Present, finance plays a vital role in world economy as it consists of major areas like business finance, finance banking, etc. Now people can make financial transactions through the Internet, use crypto currencies, and meet other novelties that have appeared in the sphere of finance.
Conclusion
“Finance is the process of dealing with cash and specifying the methods in which it will be utilised. It has processes that where from trading to money use then came to formation of banks then stock market. Overall, finance is the most comprehensive structure that has a huge influence on our world’s economy.”
FAQ's
Here are the frequently asked questions about finance.
Q1: What is finance?
And: Finance is the management of money and investments.
Q2: What is a budget?
Ans: A budget is a plan for how to spend your money.
Q3: What is a loan?
Ans: A loan is borrowed money that must be repaid with interest.
Q4: What is interest?
Ans: Interest is the cost of borrowing money, expressed in percentage.
Q5: What is saving?
Ans: Saving is setting aside money for future use.
Q6: What is investing?
Ans: Investing is putting money into assets that may grow in value.
Q7: What is credit?
Ans: Credit is the ability to borrow money based on your reputation.
Q8: What is debt?
Ans: Debt is money borrowed that must be repaid, often with interest.