Importance of finance in business organizations

 Nicola Tapson

1 year ago

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.