Importance of Finance to a Business

Posted: August 27th, 2021

Student’s Name

Instructor’s Name

Course

Date

Importance of Finance to a Business

Understandably, finance plays a critical role in influencing the operationalization of any business activity. Mainly, finance is the most important thing that runs a business, whether through its first inception or expansion. In today’s world, finance seems the core thing upon which a better business pivots since it entails the liquid cash that runs the daily operations. As much as we consider finance an essential tool in any business setup for accomplishing both small and big expenses, we should also center our focus on its efficient management. Finance represents the existing cash assets that a business can use. It is required at every stage of a business, at the start or expansion stages. It can be represented as short-term or liquid assets required to support daily business activities. Hence, finance forms the core of a business.

Foremost, I find it essential that businesses need proper management plans to handle their finances effectively. Such a move would ensure that a business sustains itself without succumbing to failure (Bansal 1). This is because many businesses are fragile, and running them seems complicated as well. Therefore, if we considered such difficulty in mind, we would devise a way of hedging such a risk of failure. Notably, it implies that investing heavily in an organization is not all that a business person can undertake. Instead, businesses necessitate the maintenance of both functional and effective management of finances. According to Bansal, Incorporating the financial management plan is to avoid falling into instances of spending extravagantly or missing to do it at all (1). Consequently, since finance is essential, inputting a stringent plan for its management seems more significant in making a business thrive fruitfully. Equally, businesses today are fragile since they are faced with different economic, environmental, and political challenges. As such, organizations continue to increase their businesses’ financial investments to ensure that they remain afloat and functional. However, it is essential that careless spending is limited. Thus, despite being the fuel for a business, proper management is desired to optimize the financial value.

Second, let us review the description of the term “financial management.” Financial management is regarded as critical decisions like an investment, financing, and dividends (Bansal 1). In this scenario, I find it necessary to limit the discussion on the funding as an important financial management decision that concerns the daily operations. For example, a business must channel its finances towards hiring a new employee, running a business telephone, or purchasing a new stationery set. Before a business undertakes all these expenditures, decisions must be made regarding how such expenses would impart the general financial management plan (Bansal 1). For instance, one might need to ask whether such costs would steer the business towards a healthy situation or not. Also, one would need to probe if the failure of undertaking such costs would limit the business from thriving. These questions are inevitable as businesses stop undertaking unnecessary expenses. Either way, a business must not be made to fail if its survival depends entirely on meeting telephone costs (Bansal 1). For example, the running of a call service center business is entirely dependent on meeting the costs of a telephone. Therefore, catering a significant amount of finances for such an undertaking is a critical decision for a business’s progress.

Third, the indispensability of finance and its financial management continuously dictate how to run a successful business. According to Bansal, a successful business largely relies on financing decisions, such as where and when to spend it (Bansal 1). With all these queries in mind, we need to discuss why a prospective business would have an effective financial management structure. Imperatively, there is a need for a financial management structure because it helps generate cash for a business, especially for a startup. Indeed, this is because a new startup business needs cash to assist in accomplishing some financial obligations (Bansal 1). The onset of a business launch program would incur some capital investment level before the business idea becomes a reality. Likewise, as the business moves up from inception to take-off, there is a series of expenditures. For example, when starting a business that sells processed products, finances would be incurred to settle the bill for obtaining raw materials. Likewise, other financial obligations would go hand in hand with hiring professional employees and conducting marketing and advertisements (Bansal 1). In this phase, decisions on how much allocated cash for the transport of raw materials are also critical in ensuring a soundtrack of business activities. Although many businesses would generate high returns, all these inflows of cash are, in turn, channeled towards the payment of bills. In brief, finances in a business necessitate a proper financial management structure.

Apart from that, Bansalstates that finance is important in a business because another business proportion might be delegated to multiple investment engagements (Bansal 1). All the financial engagements need to be monitored appropriately, thus avoiding any case of misappropriations. As much as managing the inflows is essential, the upkeep of its counter cash flows is equally indispensable. A business person must also note that failure to honor a business’s regular business flow might lead to insolvency. For example, having excessive liquid cash endangers a business’s survival as much as insufficient cash has the same negative effect (Bansal 1). As I see it, business organizations need to plan effectively to handle operational activities that match their demand levels for finances. For instance, it is unwise to hold onto large amounts of cash, which are readily needed to offset a financial responsibility. Therefore, to avoid wastage of cash, it is vital that a business channel the surplus cash towards a different engagement that would, in turn, bring additional returns to the same business (Bansal 1). Thus, such a habit would regularly expand the business, leading to an increased profitability index.

Bansal opines that finance is necessary because of its usefulness in helping business partners strategize for funding (Bansal 1). Of course, one would intend to apportion funds and further use them to plan effectively for the expenditures that regularly happen daily. On the other hand, spending money without devising a proper plan is considered an unwise venture because it would waste such an important resource in a business. Therefore, business people need to seek advice on how best to keep track of their cash inflows and outflows structure. For instance, one needs to keep track of the expenses and observe the frequency with which businesses undertake such expenditures (Bansal 1). Therefore, it is vital that businesses cut down extra costs, thus reducing unnecessary expenses. This is only relevant when everyone manages their financial obligations meritoriously. This might also be one reason why companies should have adequate funds when dealing with situations under monetary crisis (Bansal 1). Consequently, finances in a business help bring about the need to strategize for success.

Furthermore, having financial management in a business structure is critical in promoting a plan for long-term goals. In particular, many business organizations work to grow to scale up their activities so high. Therefore, a business needs to have meaningful future goals that it would seek to finish in five or ten years. In this regard, financial management aids a lot in attaining one’s goals without failure. For example, if business people plan to expand their businesses into three cities, they need to start a series of implementation relevant to managing the venture wisely (Bansal 1). Such an initiative is meant to ensure that these individuals do not waste money without a proper plan. Therefore, the whole execution of future long-term goals is pre-planned effectively concerning the available cash. Notably, there would be no anticipated waste of resources since the whole implementation happens as planned. The idea of pre-planning and working using accessible cash helps eradicate any future crises while moving closer towards the set goals (Bansal 1). In other words, finance is continually essential in influencing a business’s thriving throughout unpromising economic downturns.  If one considers looking at the progress graph of a business, one realizes that no business would rise without facing challenges. There are various downturns cases, which might dent the image of a business (Bansal 1). Notably, the shifting in levels of finances, cash inflows, and outflows brings about fall and the rise of prospects for any business organization. Recession, depression, boom, or failure all add up to a business’s fall (Bansal 1). With sufficient finance and a substantial financial management structure, it is easier for a business to grow out of its challenging recession towards a boom phase. Conversely, finance helps guide the business in how best the amassed returns during boom might be kept to last when depression reaches (Bansal 1). Consequently, a proper financial management plan structure helps a company become failure-proof, especially during adverse economic conditions. In this case, it thus implies that businesses with a stable cash-flow has a future since it can sustain its current obligations and at the same time invest in its future.

In summary, as much as finance is an essential aspect of a business organization, effective management is equally essential. Organizational business leaders need to make all their financial undertakings transparent, from amassing funds to apportioning and further spending them. Such a measure would help avert any case of indulging in unplanned expenditures. Indeed, it ensures the available cash is utilized wisely. Therefore, I consider finance one of the most significant aspects of a business, ranging from inception to take-off. As the people’s discussion revolves around doing business, finance’s prominence seems indispensable in that its effective management is inevitable when one aspires to see a successful business setup. In short, finance would remain the primary reason why all kinds of businesses are set up and further managed to scale up to fame. This is not without challenges that are depicted in the ways the existing finances are managed. Thus, proper management of financial resources assures the sustainability of a business.

Works Cited

Bansal, Nikhil. Six Reasons Why Finance is Important to Today’s Business. Fintech Weekly, 6 Dec. 2020, www.fintechweekly.com/magazine/articles/6-reasons-why-finance-is-important-in-today-s-business#:~:text=Undoubtedly%2C%20finance%20is%20one%20of,of%20the%20above%20turn%20necessary.&text=To%20be%20specific%2C%20financial%20management,spend%20and%20when%20to%20spend. Accessed 15 Dec. 2020.