Many people gain knowledge of financial concepts as kids. When parents ask their children to do chores in exchange for an “allowance,” this monetary transaction creates an elementary perception of finance. Fast forward 20 years, and you’ve traded chores for your own business. Now, you find yourself relying on another kind of fiscal entity: business finance. While business finance still takes care of your “allowance,” they serve many other essential functions that can help your company realize growth.
Financial Goals And Strategies
Every business has a bottom-line because every business has organizational goals. Business finance helps companies define their financial objectives so that they can determine the bottom-line for success. By setting financial goals, a company will know whether they’ve reached the threshold of profitability, or if they are remaining stagnant. According to a June 2005 article in “Business Finance Magazine,” Chief Financial Officers, who oversee business finance operations, are growing more involved with strategic planning efforts. The reason is that without well designed strategic plans, companies might not have the knowhow to achieve profitability. Because financial strategies tie back to the company’s goals, business finance is tasked with the responsibility of making sure the company has a way of meeting their bottom-line.
Financial planning, according to Valencia Community College in Orlando, Florida, is the process of determining how much money a company needs to operate on, how much reserves the company should maintain for a rainy day, how the company will receive the money (loans, revenue) and how that money should be spent and allocated throughout the organization. Budgeting is a popular type of financial planning tool. Business finance creates budgets through forecasting efforts. Budgets are prepared on spreadsheets that contain line items, which represent dollar values for how much money will be budgeted for that particular expense. They are especially useful for keeping financial activity on track, as well as gauging a company’s spending and saving habits.
Harvard University’s financial forecasting guidelines explain that a company’s feat relies on financial forecasts. Forecasting is a type of prediction that calculates what a company’s future financials will look like. Business finance performs financial forecasts to determine things, such as what the company’s sales volumes will be and what kinds of capital expenses they will have. Stakeholders and investors are particularly interested in financial forecasts as this data will inform them of whether a company predicts it will be profitable or not. Financial risks can be assessed through the use of forecasting techniques. If forecasts do not seem financially promising, financial risk is elevated and stakeholders could withdraw their investments if the return on investment is not in their favor. Business executives may then use forecasts to develop new strategies that might help the company realize more future growth.