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What is the True Meaning Role of Finance

Jul 24, 2008
The definition of finance is the provision of funds or loan supplied to an individual or company. Often this term is used for the study of economics and how money is controlled. It can be also defined as the management of funds and capital required by a business and private activities. Management of finance has also developed into a specialized branch within the financial sector and is carried out by finance managers.

Managing this involves dealing with the optimization and allocation of funds to various areas either by borrowing or by using those available from internal resources. The function of the finance manager is to Optimize or enable the fund to be made available with as little cost to the company but provide for a profit to be made in this process. The lives of almost everyone on this planet revolve around finance and when poor management occurs, the effects are seen globally with reductions in production and sales which obviously feed world markets. The risks for a company are high if poor decisions are made and this is the reason finance managers do not last very long in this field.

The well known management expert Lee Iacocca said of finance managers that they only see the cost of the investment and not the possible return. The big difference between finance managers and sales managers is the direction they are facing; a sales manager is looking forward, towards the future. For most small business owners there is not a clear distinction between personal and business which often leads to the funds being used in areas that are not part of the arrangement. When money is lent under these circumstances, lenders feel quite aggrieved as they have lost control of where the money is being invested.

Hopefully by educating the small (and large) business owners of their fiscal responsibilities they may build the basis of an improved company in the future. Small businesses can be very flexible, however, and call upon friends, other businesses, family members, even their own bank for finance.

Obviously the more finance that is provided by outside sources the more it ignites the profitability of the lender. Banks have always been known as institutions that prefer to lend money to those that least need it which is why if you are already wealthy and require a loan it is often arranged at a preferential rate of interest.
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