Explain the aims and importance of finance function in business
Answers
Answer:
Explanation:
The Finance Function is a part of financial management. Financial Management is the activity concerned with control and planning of financial resources. In a business, the finance function involves the acquiring and utilization of funds necessary for efficient operations. Finance is the lifeblood of a business without it things wouldn’t run smoothly. It is the source to run any organization, it provides the money, it acquires the money.
Objectives of Finance Functions:
Investment Decisions– This is where the finance manager decides where to put the company funds. Investment decisions relate to management of working capital, capital budgeting decisions, management of mergers, buying or leasing of assets. Investment decisions should create revenue, profits and save costs.
Financing Decisions– Here a company decides where to raise funds from. They are two main sources to consider from mainly equity and borrowed. From the two a decision on the appropriate mix of short and long-term financing should be made. The sources of financing best at a given time should also be agreed upon.
Dividend Decisions– These are decisions as to how much, how frequent and in what form to return cash to owners. A balance between profits retained and the amount paid out as dividend should be decided here.
Liquidity Decisions– Liquidity means that a firm has enough money to pay its bills when they are due and have sufficient cash reserves to meet unforeseen emergencies. This decision involves management of the current assets so you don’t become insolvent or fail to make payments.
Why a Business Needs The Finance Functions :
Helps Establish a Business– Without money, you cannot get labor, land and so on with the finance function you can determine what is required to start your business and plan for it.
Helps Run a Business– To remain in business you must cater for the day to day operating costs such as paying salaries, buying stationery, raw material, the finance function ensures you always have adequate funds to cater for this.
To Expand, Modernize, Diversify– A business needs to grow otherwise it may become redundant in no time. With the finance function, you can determine and acquire the funds required to do so.
Purchase Assets-You need money to purchase assets. This can be tangible assets like furniture, buildings or intangible like trademarks, patents etc. to get this you need finances.
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