Unit 5 - Fun with Finance
Learning Target 1: I can explain what finance is
Business finance is a wide encompassing terms that involves the managing of money and assets. A very general but efficient explanation of the term is bringing money into an organization. There are three major functions of finance, financial goals and strategies, financial planning and forecasting.
Financial goals and strategies helps businesses define and set their organizational objectives in order to achieve bottom line success (profit) Financial planning deals with how much money is needed to operate, how much should it save, how much money does the business expect to receive from sources other than sales and finally how much money should be allocated to other departments such as marketing or human resources.
Forecasting is predicting what the company’s future financial statements may look like. Items included in here are the amount of sales and a prediction on possible capital expenses the business may encounter. Also included in the financial forecasts is an assessment on financial risks.
Watch the following video for more in-depth information on what finance is.
A lot of people confuse finance with accounting. The easy way to explain the difference between finance and accounting is finance is forward looking and accounting is backward looking. Finance looks at things that may happen in the future while accounting records events that have happened. Finance deals with what to do with the company’s assets where accounting records the purchase of assets and the depreciation of value of the asset. Finance also deals with financing business activities. Another way of stating this how businesses fund different business ventures. Accounting will record the expenses and revenues of this new business venture but finance is more about the how to fund it.
Watch this video for more in-depth information on differentiating the two.
Finance plays many important roles within a business. These range from goal setting, controlling spending, ensuring sufficient financing for new projects and ventures, make sure customers pay their bills they owe the company in a reasonable amount of time and investing the company money wisely. Finance is key to the success of any business as it keeps the business on track in regards to money.
Finance relates to every other component of a business. If marketing wants to run a new social media campaign, finance has to be consulted to determine if the business can afford it as well as calculate what the possible return on investment will be. If human resources want to hire more employees, finance needs to be consulted to show what impact it may have on the company’s financial statements not to mention if it believes the additional cost of new employees will be less than the additional revenue the employees will generate for the company. If the executive management team decides it wants to grow the business by acquiring another company, finance will have to decide if that is good decision comparing it to the other possible alternatives that the business could do with that same amount of money instead of buying that other company. As you can see no matter what the decision is finance is a key player.