Finance is part of the economy that is responsible for the management and optimization of money flows related to investments, financing, inflow for collections and outflow for payments. Among the main objectives that finance has is to maximize the value of the company and ensure that all commitments can be met in the outflow of money from the company, that is, payments. To achieve these set objectives, the company’s finance manager must continually evaluate the best investments and the lowest cost financing.
DIFFERENCE BETWEEN FINANCE AND ACCOUNTING
As we have already mentioned, accounting is responsible for obtaining economic information from inside and outside the company. We are going to analyze and plan this information to find out how the company works, and have information about the future that awaits it. In this way, the company’s finances can be improved, which includes the decisions about the investments that can be made and how we are going to finance them.
In this way, accounting will obtain the information that is used, among other purposes, to coordinate and direct the finance area.
In small companies, accounting and finance are usually handled by the same person. In contrast, in a larger company, the person in charge of accounting usually reports hierarchically to the chief financial officer.
IMPORTANCE OF FINANCE AND ACCOUNTING
Accounting allows us to ask certain questions of great importance to the company:
- Is the company ready to meet all your payments with the collections you have received?
- Are you making money from the products or services that are being sold?
- How much money does a unit of product cost?
- How much money does it cost to perform a certain service?
- How much does a certain department of the company cost us?
- Will there be profit or loss next year?
- Is the company economically sound?
- Is the company viable?
- Does the company offer enough confidence to request financing from banks?
Although it may seem strange to us, sometimes it could happen that the more the company manages to sell, the more money it loses with it. And is that many companies do not know well the production costs of the products they sell. This lack of knowledge caused sales prices to be set for products that were not adequate, since prices were set below the manufacturing costs of these products. In this case, the error has been not calculating what the products sold cost us.
WITH FINANCE YOU CAN GIVE ANSWERS TO OTHER IMPORTANT ISSUES FOR THE COMPANY
- Is an investment profitable?
- What is the best alternative among various investment options?
- Is the company being adequately financed?
- Is it better to finance yourself with debt or with the money that the shareholders contribute?
- What dividend should be distributed?
We can think of a company that asks for a loan from a bank, and this one does not grant it. The manager of the company does not understand why the loan has not been granted. However, we find that the company is highly indebted and therefore has great problems in meeting its payments, accumulating many debts that have expired. In this case, they could have financed several investments in an incorrect way, with which this company would end up closing by failing to meet its payment commitments. These problems could have been avoided if the financing had been managed correctly.