–noun [fi-nans, fahy-nans]

Overview

Finance is the science of funds management. The general areas of finance are business finance, personal finance, and public finance. Finance includes saving money and often includes lending money. The field of finance deals with the concepts of time, money and risk and how they are interrelated. It also deals with how money is spent and budgeted.

Why is understanding Finance so important?

Finance is the blood of business. In modern time, it is not possible to start business activities without the availability of adequate finance. Business enterprise requires funds for the creation of fixed capital i.e. land, building, machinery and for the purchase of man power, raw material, energy etc. Business finance means anticipation acquisition and allocation of funds. Business finance is defined as that business activity which is concerned with the acquisition and conservation of capital funds in meeting the financial needs and overall objectives and business enterprise. The success and failure of business in private sector is linked with finance. Business without finance is a just like a fish out of water. For proper working of assets, repair renewal and maintenance is necessary. This work cannot be done without finance.

Karen Berman and Joe Knight, co-owners of the Business Literacy Institute, have set about explaining the ins and outs of finance. Having financial intelligence, they say, boils down to four skill sets:

» Understanding the basics of financial measurement.
» Understanding the art of finance and accounting when rules, estimates and assumptions need to be applied to numbers.
» Understanding analysis.
» Understanding the big picture so numbers are viewed in context.

Non-financial types might not realize that accounting and finance are as much art as science. Data is used to "come as close as possible to an accurate description" of how your company is performing, say the authors. As such, accounting and finance are a "reflection of reality." So it makes sense that if you understand that as well as the basics of financial measurement then you can ask better questions, use better assumptions, make more informed decisions and provide better guidance to those in financial roles at your organization.