Everyone uses finance at some point in their lives when they need capital supplied by another. As a branch of a broader subject ‘economics’, it can also be viewed as a method of managing assets. This subject is also referred to as a system of administering money used by the private and business sectors. People that look after or manage the arranging of finance are called finance managers.
This involves lending money to another company or individual, either from internal resources or externally. The term optimization is used to explain the procedure whereby finance is maximized by reducing costs and increasing the return. 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 that is walked. This is why people who act as finance managers only have this type of work for a relatively short period because the potential risk to companies is high and so are the stress levels as a consequence.
Finance managers can be very short sighted, only looking at the initial cost involved and not the future return capability of the project. These managers are the opposite of sales managers who are forward, investment thinking individuals; whereas a finance manager will not recognize the fact that investment requires an approach that lies in seeing into the future to look for returns. Many small business owners forget that the business loan they have arranged is not for personal use; a distinction which gets blurred regularly. Lenders are not very happy about this type of situation because they like to know exactly what they are funding.
This may cause some concern amongst small business owners but they should train themselves to be more focused on their business which should in turn create a better frame of mind for the future. Small businesses are not however, restricted to using external finance companies because other sources do exist including their bank, friends and other types of private lender. Lenders prefer to use money from elsewhere because it lowers their risk but still allows for a healthy profit to be received by the finance company. The famous comedian Bob Hope best summed up the subject when he once said; a bank is a place that will lend you money but only if you can prove that you don’t need it.
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