W. Somerset Maugham once said, “Money is like a sixth sense without which you cannot make a complete use of the other five.”
This is a quote that speaks to the reality of life, wherein money is essential. Funny how it sounds so accurate, given that everything in this world corresponds to an amount of money. We would probably struggle a lot if we continue living without money. Right?
Seeing how huge the impact of money is in our lives, it is also an inevitable fact that money is the blood of the economy. Without the circulation of money, it will surely lead to great chaos in society. This is the reason why every nation takes crucial steps and processes to control its financial activities.
Finance is commonly mistaken to be synonymous with Accounting, when in fact it is actually much superior to it. Even if Accounting is a sub-domain to Finance, it can’t be denied that these two go hand in hand.
When talking about Finance, it mainly concerns the management of money. It functions in the same way that blood functions in human bodies. It transports essentials that our body needs to stay alive and healthy. Likewise, Finance is responsible for acquiring money or funds for a business to start, and the allocation of that acquired funds for the business to operate.
Finance acts as the foundation of a business’s activities. Its scope includes vast factors and considerations in money that must be thought of thoroughly as it is the key to meeting and achieving financial goals, as well as the short-term and long-term goals for the business itself.
- Where and how should a fund be acquired?
Seeking funds is important for businesses to grow, since one source of funding may not be enough. A fund can be acquired through (a) Retained Earnings or the profits earned less the dividends paid, (b) Debt Capital through bank loans, or (c ) Equity Capital through shares issued.
- Where should it be invested?
It is important that funds must be invested into something that can be utilized by the business and can generate high returns. For example, a business can invest in better equipment or more employees to increase productivity,
- How should it be allocated for budget, savings, and other expenses?
Having a clear idea of how much must be allocated to certain parts of the business is a must, it achieves operational effectiveness and helps in reducing the cost of capital. Without proper allocation, you will either gain or lose something.
There are quite a lot of things, situations, and risks to consider in the field of Finance. But the main point here is Finance plays a significant role in an individual and a business.
Its significant role reflects even in our own lives, and in different classes of individuals; our personal finances. You might not notice it, but you are already practicing Finance even if you are not a Finance professional yourself. When you receive your salary, your first thought is “Where should I spend this?” or it could be “How can I save this or make this grow?”. These questions relate to our personal finances. One thing that most individuals do in tracking their personal finances is keeping receipts and records of all expenses and other transactions that they encounter, and by simply writing and taking notes of them. This is where Accounting takes place.
Accounting may sound complex or intimidating for some, but it’s actually not. It is all just numbers, transactions, principles, and standards. The scope of it may be complex but the primary function of Accounting is simple. This field tracks the finances through bookkeeping.
It provides a systematic way of recording transactions, summarizing, analyzing, and reporting financial information. This process that Accounting provides is significant in a business, as every transaction that occurs needs to be recorded and accounted for properly for the financial statements to be accurate. If inaccurate, a business might face serious legal problems.
Accounting is not all just professional and complicated, it is also evident in our daily life activities. For example, when we hear about the increase in commodities on the news we tend to check our budget. We analyze our spending for the budget by excluding the wants and prioritizing the essentials.
To summarize, we see Finance and Accounting as partners in businesses and the economy. With the work of these two, companies are able to work smoothly and legally, and are able to practice being organized and credible.
Here, at THRIVE Global CFO, we offer excellent quality services from a trusted group of CFOs to take care of your financial and accounting needs. You may get to know us more by booking a free strategy call or visiting our website and social media platforms. In our world today, let us thrive together with our CFO care packages!