How Finance Plays An Important Role In Business

How Finance Plays An Important Role In Business

Business will be able to successfully operate only if its sound financially. All the businesses in the initial stage like during the period of inception and growth would spend more money than they earn. However, the financial health in long-term depends on the organization ability to earn more money (profit) than it spends. In addition to this, the financially viable organization must effectively manage its cash flow in order have enough capital to cover the basic expenses and to avoid going bankrupt.

Importance of finance in business

Financing- Most of the business will avail finance some time or the other through different types of financing like business loans, a line of credit, etc. To avail quick money, the business could also invest its fund in trading. Read through the following source of information to understand all about it.  Financing in business is a valuable tool which helps the business to grow and enables the organization to meet its expense during the slow periods. However, one needs to carefully manage the business finance so that smart choices are made regarding the credit options and the payments are made on time so that costly charges could be avoided.

Bookkeeping The process of tracking the daily financial activities of the company like sales and expenditures and the periodical compiling of information into various reports like balance sheets, profit & loss statements is known as book-keeping. Book-keeping is quite important as it gives a feedback about whether the business is able to make both ends meet.  Also, it helps the business in identifying which area needs to be given more attention. For instance, if the records show that the percentage of payroll to sales is much higher than the industry average; you need to use this information to streamline the problem so that the business will be sustainable financially.

Budgeting- Budgeting is a part of financial management which deals with planning the expenses and income.  It helps in evaluating the expenses based on the income the business is earning currently and the expectations about how much the business can earn in the future. Sound budgeting is critical as it enables the business to take appropriate financial decisions with help of sufficient resources and sound information.

Cash flow- Efficient management of cash flow ensures that the organization will be able to meet the day-to-day expenses, having enough funds in the bank to pay the staff and having enough capital to promote growth.