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The Meaning Of The Term Finance

By: Kay Brown

When a person refers to the term finance they are refering to when money is provided for a commercial activity either public, personal, business, government or individuals. As a branch of a broader subject referred to as 'economics', finance can also be viewed as a method of managing assets of people, businesses or government entities.

Depending on a persons viewpoint, finance can also be used to define the subject of managing the funds that the private business and the government sector uses. Large companies with even larger portfolios will usually employ a finance department and finance manager to help control their assets.

This type of management uses funds either from internal resources or external and allocates them to business interests to maximize profit. The simple process of optimization is used to receive the most from these funds by reducing the cost of arranging the finance whilst at the same time ensuring returns on investments are high.

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 between being in the green and being in the red. The finance manager's job is to maximize profits whilst keeping the risk to a minimum so you can understand why stress just naturally goes with the job of finance manager.

Some finance managers can be very short sighted, only looking at the initial costs involved and not the potential future return capability of the project. Unlike the sales managers who would like to invest in the future by product development, finance managers are rather skeptical of financing a project whose benefits lie in the future; even though their management governs future outcomes too.

For most small business owners there is not a clear distinction between personal and business funds which often leads to the funds being used in areas that are not part of the arrangement. Quite understandably, lenders are unhappy about this type of arrangement as they feel their financial interests are put in harms way.

Although resisting the tendency to use funds this way may dampen some business owners enthusiasm as they want their personal toys right now, it may just crytalise the borrower focus on proper use of finance and instill more discipline for the future. However, small businesses if having problems finding conventional financing, may look for financing from other sources like friends relatives or private lenders.

Of course lenders are out to make a profit and business loans can be expensive, a situation which is partly designed to increase the finance company's return and to offset any potential loss on return. 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 very easily and at a preferential rate of interest.

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