Finance is the life blood of any business. Here, we discuss the Importance of Finance Management in Business. Business could also be big or small, finance is required, the sole difference is that the amount of finance required.
In this article, we elaborate the meaning of Business Finance, Importance of Finance Management in Business and main function of finance.
Finance Management in Business
Small sized business is invariably financed out of the private savings of the businessman. But after the industrial revolution the size and complexities of business increased tremendously, making impossible for a sole trader or partnership firms to finance such large sized ventures. Joint stock companies filled this gap and made possible to gather huge funds from an outsized number of persons which too with their liability limited.
“The joint stock company form has proved a versatile and valuable instrument. It joins the venturesome and therefore the countious, the rich and therefore the penniless, the capable and unskillful, the energetic young and retiring old into a system of contractual relationships which make it possible for each to make the most appropriate part in those gigantic business enterprises which strech across the continents and overseas.”
In our study of financial planning, we shall primarily ask the financial planning of joint stock companies because this type of business dominates the economic world.
Business finance simply means the supply of cash when it’s required. In the present money-oriented economy, we simply cannot imagine any business without money. It has been rightly remarked by someone that money is needed to earn money but in order to earn money, the money invested must be well managed.
That is why Wheeler defined business finances as that activity which cares with the acquisition of capital funds in meeting the financial needs and overall objectives of the commercial enterprise.
Finance function may be a separate functional area of management like production, marketing, personnel etc. No doubt, production and marketing are the basic sub-systems of a business system but finance subsystem is of strategic importance because their success depends directly upon the efficient operation of finance sub-system.
Finance function is so closely inter-related with the opposite sub-systems of a business system that it’s almost impossible to segregate it from the overall business management.
In fact, so closely are the financial matters of a business system related to the plans and results of each other department that during a sense, every proposal and each decision involving financial problems features a pertaining to financial results. It is precisely thanks to the ever-increasing importance of finance function within the business that the role of the finance manager is undergoing a continuing change and therefore the scope of finance function has broadened beyond recognition.
Earlier finance function was concerned with procurement of funds. Hence, all the sooner studies were confined to sources of raising finance and therefore the institutions involved in raising finance.
Finance was defined by Paish because the provision of cash at the time it’s wanted. Now it is well recognized that procurement of funds, though an important aspect, covers, only a part of the finance function. The other important aspect is the wise use of funds procured for business.
Objective of Business
The primary objective of any business is to earn sufficient profit to pay an inexpensive return to the investors and also to retain a neighborhood of the profit for ploughing back into the business. So, the scope of finance function not only covers the task of fund procurement but also the foremost suitable allocation of funds. so, as to maximize the profits.
In the words of Guthmann and Dougale- “Business finance can broadly be defined because the activity concerned with the design, raising, controlling and administering of funds utilized in the business”.