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Why is the role of Finance pivotal in a business

By Precious Mvulane

Finance passes through every part of a firm’s operations. Few business decisions are ever made without considering the financial implications. Finance brings your business to life in a way.

  1. Strategic Planning and Budgeting

You need to define where you want the business to go, determine the objectives and then calculate how much it will cost to get there. These plans then form the basis forraising and spending capital,hiring employees and implementing marketing campaigns.

  1. Capital Management

After developing your strategic plan, you then need to evaluate the methods of funding a company’s operations. Is it better to raise more equity capital from investors or take out loans from lenders? Financial analysis gives the answer to this question.

  1. Cash Management

A small business owner always wants to know how much money is in the company’s bank account. A key role of financial management is to make sure the business has enough liquidity to pay its suppliers and employee on time. If cash is getting tight, the owner will need to consider making arrangements to use the firm’s bank line of credit.

Conversely, having excess cash sitting idle in a bank account is a drag on a company’s return on investment. Financial analysis will spot this situation and will find investments that produce a better return.

  1. Profit Planning and Cost Controls

Since the basis of a business is to make a profit, it only makes sense that finance would play a major role in finding ways to improve profitability. Click To Tweet

This might involve determining the profitability of individual products and weeding out the losers and promoting the winners. Finance could point out ways to improve productivity in manufacturing or find cheaper sources of materials.

Small business owners are constantly looking for any expenses that suddenly get out of line with the budgets. This is financial management by exception. If everything is in line with the profit plan, no problem. If not, then it needs the attention of managers to correct the deviations.

  1. Risk Management

Managing a business is risky. An owner has concerns about the direction of interest rates, currency fluctuations, changes in commodity prices and risks that his customers will not pay their invoices. Financial reports monitor these areas and give reports to owners and managers.Nothing is ever for certain, and finance helps put these hazards in perspective.

The role of finance in business is indispensable. Business owners use financial data every day when making decisions. They use finance to analyze the present and project the future.

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