Finance Management

INTRODUCTION


The first and foremost requisite of any business is CAPITAL. Money is required for all its activities.

To start and run any business we need money, along with men and material.

Effectively managing these precious resources is essential for the effective conduct of any business.

How can we find or arrange money.

Owners’ own contribution is the first option open before us. Normally small and micro business ventures are started with owners’ own contribution. Most of them run with that and never goes beyond that.

When the contribution of the business owner becomes insufficient, for the proper conduct of the business or to meet the excess demand of resources for the proposed expansions, we think of borrowing. We may borrow from other individuals, other business organizations or from banks in private or public sector.

We raise the required capital by inviting and accepting equity shares from other individuals. Debt or equity instruments are the available means to raise the required capital.

In debt we don’t share the ownership of the business organization, and the person/s who have contributed the money are not liable for the liabilities or loses incurred by the business during its conduct.

In equity participation we are sharing the ownership of he business organization in accordance with the proportion of the participation. The return on investments will be in accordance to the business performance and not fixed prior to the investment as in the case of debts.

From the various options available a finance manager/entrepreneur has to arrive at the right decision as to how to arrange, how much and when to arrange the capital to optimize the return from the business activities.

Capital has its own cost. The income that can be derived if the owner invests the money on some other business or activities is the COST OF CAPITAL in the case capital arranged as Owners’ own contribution.

Dividends or other disbursement given away to investors along with the other expenses incurred in rising and maintaining equity shares is the cost of capital in the case of equity instruments.

Investments Decisions, Finance Decisions, and Dividend Policy Decisions are areas where a Finance Manager has to use all his intellectual resources to arrive at the apt course of action and that’s what FINANCE MANAGEMENT is concerned all about.