Share, , Google Plus, Pinterest,

Posted in:

Importance of finance in business organizations

Article by Alex Merashi

Importance of finance in business organizations

Finance is one of the very subtle sectors of a business that can make or break entrepreneurs. Ideally, all companies need finances for daily operations, and this is what makes the concept of finance very important as an area for all organizations to cover. In South Africa especially, there is an underlying need to keep a business well financed and managed, in alignment with the economic development goals of the country. Below are some of the reasons finance matters to business organizations:

Profit creation

A popular phrase, ‘money is for making money,’ explains why finance management in business organizations requires the utmost attention. For a business to keep running successfully, the amounts of profits coming in must keep increasing. This means that the initial capital investment must be well managed, with a thin line between debt and equity financing. The profit planning for the finance team should look a lot like determining the profitability of individual products and services that the business offers while weeding out the losers and promoting the winners.

Operational expenses

Meeting the operational needs of an organization is what keeps a business going. Finance for most companies, including African businesses, entails some operational costs such as remunerative payments for staff members, raw materials, inventory, interest payments, to mention a few. A proper financial plan provides a form of stability in managing the profits that are coming into the organization, in relation to the operational expenses that need to be met frequently.

Asset creation

The primary long-term agenda for company owners is to scale up production by increasing the assets of the business. The finance sector allows companies to have a solid saving plan that is not dependent on short-term finances to meet this need. Investing in items such as land, equipment, and machinery will definitely boost the production scale, but will only happen with intelligent financial management. For the most part, the matter of asset creation goes as far and wide as keeping up with technological advancements that will mean well for the success of the business.

New products and markets

The chase for new products and markets is vivid for all businesses. For example, you can engage in mystery shopping so that you find out what commodities are available in the market, and what customers are interested in. Without a proper financial structure, you may not have the financial muscle to get into new spaces and approach a different market with newer solutions or products.

Cash Flow Management

Any business big or small anticipates a large sum of cash flowing in and out of the company. These money transactions are necessary to keep a business going. But without a proper system in place, they can be a great source of problems, particularly legal issues. A business organization needs a strong financial team to handle the cash flow of the company, with existing records as a testament to the different transactions. This helps to check out that all necessary expenses are met, including taxations to the government. Ideally, the whole point of cash flow management is to sustain enough liquidity to meet most operational expenses.

Financial goals

Among other necessary goals for a business set-up, every organization has a set of financial goals. While most involve hitting a certain profit margin over a specified period, financial goals go as far as catering for the overall economic demands and requirements of the nation.

Management of unavoidable risks

Running any company is all about taking risks. Even so, it is not enough to think of your business set up as a risk. Natural phenomena along with human errors can by far be the leading reasons you suffer significant loss in your business. Before that time comes, your financial management techniques will help pull out a contingency plan that will prepare your company to manage unavoidable risks.

Alex Merashi is proudly associated with the NSBC.