Finance of enterprises is The concept and specifics of enterprise finance

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Getting the maximum amount of money is the main goal of any enterprise. To understand what you have and how you can use it, you need to conduct a competent financial policy. And for this you need to know the theoretical basis of this approach.

What is finance?

This is the name of the system of monetary relations, which expresses the formation and use of trust funds during their circulation. The finances of firms occupy an important position in the economic system of the state, since at their level the bulk of the funds are formed that will be used in the future. They are divided into own and credit (attracted). The first are in the unconditional location of the enterprise and can be used for any purpose. The latter will need to be repaid over time, paying more and interest. So what are the features of enterprise finance? This is not an easy question, so the answer will be divided into several sub-points.

What is business finance?

This is an integral part of the national economic system. These include:

1. Pricing.
2. Funding from the budget.
3. Tax system.
4. The level of money circulation.
5. Loans.
6. Foreign economic activity.
7. Licensing.
8. Income.

The following factors have the greatest negative impact on the finances of commercial enterprises:

1. An undeveloped monetary policy that does not take into account the volume of commodity mass and the real interests of the enterprise.
2. Price liberalization without first necessary settlement.
3. Wrong fiscal policy.
4. Decrease in investment activity.
5. Trends in the stock market and banking policy.
6. Payment crisis.
7. Wrong export/import policy.

Principles of business finance

For their organization it is necessary to adhere to the following postulates:

1. Keep an interest in the end results of the work.
2. Create financial reserves.
3. Responsibility.
4. Division of finances into own and credit.
5. Fulfillment of assigned obligations to the budget.
6. Financial control of activities and use of funds.
7. Independence.
8. Self-financing.

Principles of enterprise finance are based on maintaining a balance of interests of a private entrepreneur and the state. When deviating from them, leverage is provided that will allow the system to return to its original state.

Money turnover relations

Finance of an enterprise is such an economic element that is constantly in motion. Each direction of spending should have its own source of funding. The following relationships are usually distinguished:

1. With buyers.
2. With employees of a firm or enterprise.
3. With banking organizations.
4. With the state.
5. With management structures that have leverage.
6. With participation in other enterprises (such as the distribution of profits received from joint activities).
7. Work with trust funds that have an on-farm purpose.

Financial mechanism

It consists of five elements that are interrelated:

1. Financial methods. This includes ways to influence economic processes when using funds through the creation of trust funds. The formation of the finances of the enterprise is the main purpose of using these methods. Their peculiarity lies in the fact that they determine the foundation on which everything else is built.
2. Financial leverage. These are actions aimed at achieving the desired goal.
3. Legal support. Includes decrees, orders, legislative acts and other similar documentation.
4. Regulatory support. This includes instructions, tariff rates, clarifications, guidelines, and similar data.
5. Information support. This includes economic, commercial, financial and other data that are valuable in everyspecific case. So, information about solvency, financial stability, money rates, and so on can act as objects.

As you can see, corporate finance is such a specific area where you have to act with an eye to a number of factors. Moreover, they can have both an informational basis and a legislative one. If the wrong way of interaction is chosen, the entrepreneur may be ruined.

Functions

They allow you to understand the very content of this area of the enterprise. There are three functions in total:

1. Distribution (stimulating). By this it should be understood that the company decides where the received funds will go. With its help, funds are formed to fulfill all obligations that the organization has to the staff, budget, contractors and creditors. If everything is done with a reasonable approach, then there is a stimulation of the quality of work, this can be said about the finances of commercial enterprises and government organizations.

2. Control. It consists in monitoring the financial condition of the organization and checking the effectiveness of its work. The most important is the control of profitability of the enterprise. This function is implemented in two ways:

   1. Tracking the indicators that are in operational, accounting and statistical reporting.
   2. Influenced by financial influences (taxes, subsidies, incentives).
   3. Serving (reproducing). This function dealsso that there is a constant renewal of consumed resources (as an example: the purchase of new materials, the hiring of new workers to replace those who have retired, and so on).

Structure

Financial resources by their origin can be conditionally divided into three components:

1. They are formed thanks to their own funds. This includes profits received from the main activity, the sale of property, earmarked income, various contributions, and so on.
2. Were mobilized in the financial market. This includes funds received from the sale of securities, interest and dividends, loans, income received from transactions with foreign currencies.
3. Received after redistribution. These are insurance indemnities, financial resources (which came from other economic structures), resources (which were formed on a share basis) and budget subsidies.

Management

The formation, as well as the use of financial resources, is not possible if there is no system that organizes and coordinates everything. Management implies the achievement of strategic and / or tactical goals regarding the functioning of the enterprise itself. Business finance organization features include:

1. Formation of financial resources, as well as their optimization.
2. Investment of capital.
3. Analysis of the company's finances and the direction of cash flows that circulate through it.
4. Managing the process of functioning of capital.
5. Organization and management of relations with other enterprises, insurance companies, budgets, banks and other divisions of the financial structure.

Conclusion

As you can see, business finance is a complex part of any commercial organization. They need to be handled and used rationally. Any manager should be aware that the finances of enterprises are the main guarantee of his functioning, and they should always be worked with from the point of view of optimality and efficiency.