Business Finance

Business Finance

Business finance, the raising and managing of funds by business organizations. Planning, analysis, and control operations are responsibilities of the financial manager, who is usually close to the top of the organizational structure of a firm. In very large firms, major financial decisions are often made by a finance committee. In small firms, the owner-manager usually conducts the financial operations. Much of the day-to-day work of business finance is conducted by lower-level staff; their work includes handling cash receipts and disbursements, borrowing from commercial banks on a regular and continuing basis, and formulating cash budgets.Financial decisions affect both the profitability and the risk of a firm’s operations. An increase in cash holdings, for instance, reduces risk; but, because cash is not an earning asset, converting other types of assets to cash reduces the firm’s profitability. Similarly, the use of additional debt can raise the profitability of a firm (because it is expanding its business with borrowed money), but more debt means more risk. Striking a balance—between risk and profitability—that will maintain the long-term value of a firm’s securities is the task of finance.
A big part of managing your finances is having visibility of what’s going on in your business, whether you’re a sole trader, or in a partnership or company.  The key tools and reports to manage your finances are:

1. Cash flow

Your cash flow is the money coming in and going out of your business — and how much of the money sitting in your bank account is yours to spend. A healthy cash flow is having enough money to pay what you owe when it’s due.

2. Budget

A budget is an estimate of your income and spending over a period. It helps you think ahead and plan your spending to get to where you want to go.

3. Profit and loss statement

Your profit and loss statement is an accounting report that shows your income and expenses — and whether you made a profit or loss — over the financial year. It may also be known as the income statement.

4. Balance sheet

The balance sheet is an accounting report that shows what you own and what you owe at the time of the report. It’s known as the ‘snapshot’ of your business’s financial position.

 

 

 

 

Types of business finance