We use the term finance to explain the act of borrowing for loans or capital for a project. Often, this term is used for the study of economics and how money is controlled. Depending on your viewpoint, it can also be used to define the subject of managing the funds that the private and business sector uses. When these funds are administered by a representative of a company, this specialized area is called finance management.
These managers arrange funds to be lent to individuals or business using their company’s assets where possible and if not sourcing the money elsewhere. The whole basis of optimization is to enable the maximum return from your finance whilst ensuring the cost to arrange it stays at a minimum.
Because the world revolves around finance, when there is a problem with bad debts and depressed markets, production and sales start to decrease as it is a very fine line that is walked. It is for this very reason that finance managers are very careful with finance they agree too and where it is funded from.
A well know marketing and management guru Lee Iacocca said that finance managers always looked at the cost involved in a finance deal and not the future return. These managers are the opposite of sales managers who are forward, investment thinking individuals; whereas a finance manager will not recognize the fact that investment requires an approach that lies in seeing into the future to look for returns. Some problems arise for the number of businesses that arrange loans and then use them for personal reasons, forgetting that this clearly defined barrier exists. Managers are rarely impressed with this situation as they believe they have aright to know what their money is being used for.
Although resisting the tendency to use funds this way may dampen someone’s enthusiasm in the short term, it will focus the attention of the borrower and perhaps instill more discipline in the future. Small businesses can be very flexible, however, and call upon friends, other businesses, family members, even their own bank for finance.
Finance managers can help improve their company’s profits by using external sources which also lessens the risk on them at the same time. Bob Hope once said that you can only get a loan from a bank if you can prove to them you have absolutely no need for it; advice which could not be more true. But always make sure that you review all that you do with your finances, to try not to make the wrong decisions.
