Concept of Finance

The term finance is present in the life of any person or company, the reason is that it encompasses all financial operations that are carried out.

It is a sector of the economy that studies the way in which capital and money markets work, the agents that intervene in them, the value and time of money or the actions that are carried out to obtain resources.

Finances have the function of monetarily valuing the actions that are carried out in daily life.

When planning a project, a trip or the purchase of a good or service that is in principle not accessible and has to be financed, a financial plan is carried out.

The economic system that prevails today makes it necessary to take money into account in practically all spheres of life.

Various types of finance

Finance has different areas of specialization, three basic types can be distinguished depending on the sector in which they are developed and the purpose for which they are used.

Personal finance, the day-to-day

This type of finance is related to money management carried out by ordinary people. They refer to the capacity they have to generate savings using their resources efficiently.

Possessing a surplus of capital that can be used to deal with unforeseen events or to make investments is one of the most valued aspects in the economic sector.

The permanence of this additional money is threatened by the daily decisions that have to be made.

The only way to maintain and increase it is by analysing the income obtained and the expenses to be faced month by month, as well as making correct decisions regarding the purchase of goods and services of any kind.

Avoiding financial problems is the first symptom that personal finances are well managed.

The search for profitability in corporate finance

This variety focuses on the economic decisions that companies make,

They are usually directly related to the investment and are concretised in the market study to identify the best opportunities and the profitability analyses that are set in motion.

All these actions are aimed at achieving economic benefits and increasing the value and prestige of the entity itself.

The financial area is one of the most valued within the company, the reason is that the development of the company depends on it.

A bad investment can have a negative impact on the company’s performance, and a good investment can make it grow and increase its capital.

The importance of these decisions is reflected in the positions in charge of valuing them.

Before executing them, the financial area usually meets with the directors of the entity and, if necessary, the opinion of an expert from outside the company is available to ensure that no false steps are taken.

The work of a company’s financial team

All the functions of the financial department of a company are related to the management of the resources available to the entity, and are always focused on two basic objectives.

The first is the obtaining of financing and the second is the making of investments that bring economic benefits and make the company grow.

The importance of increasing resources

Currently, the capital you have is the element that defines the potential of a company.

For this reason it is important to find sources of financing that allow the company to start its projects.

However, some of them have to be analysed carefully, such as the acquisition of a loan, which will mean facing the interests it carries.

To carry out this analysis it is necessary to know:

  • What is the state of the company’s accounts and based on it choose the most profitable option for the company.
  • Signing a loan that cannot be repaid will generate liquidity problems that will hinder the company’s progress.
  • The search for financing, which is carried out when there is not enough capital to carry out the daily operations required by the business.
  • In order for production to be carried out effectively, machinery, human capital and work spaces such as offices, warehouses or premises are needed.
  • In order to acquire them, it is necessary to make an economic outlay that is sometimes not available.

The value of making the best investment decisions

Funding is also needed to carry out some investments that were not foreseen.

But they arise because of the state of the market. Sometimes there are promotions of machinery or work materials that are very interesting.

But there is not enough capital to face them.

Asking for a credit or a loan can be fundamental to undertake them, and depending on the costs, the payment of the advance with its interests can be more profitable than letting the opportunity pass.

The search for this type of occasion is one of the main objectives of the components of the economic area of the company.

In addition to acquiring work spaces and materials, they must also be able to acquire assets such as shares of other companies that promote the growth of the company itself.

The aim is always profitability and for this it is necessary to select the best asset, this field is also conducive to carry out buying and selling operations.

Although this is not usually the case.

Some companies acquire a specific place or work instrument with the aim of selling it later and making a profit.

Many entities structure their accounts on the basis of savings, reserving a capital over with the aim of investing it in some financial asset, product or service.

The idea is to obtain extra money to accumulate or reinvest.

The fact that all this is done with a capital that is not necessary provides serenity when choosing the investment, since the level of risk is very low and losses would not affect the performance of the company.

The financial technician, a highly demanded profile

This employee is one of the most valued in the company.

His work is based on coordinating the different commercial areas of the entity to carry out financial operations that are profitable for it.

It must also control all financial products that have to do with the company.

As well as the operations that are carried out and be aware of the accounting, the state of the accounts of the company, provide support to managers and assess the risks of the operations to be carried out.

The preparation of reports is another of its main functions, to write this document the technician has to analyze the statistics of the company verifying all the data relevant to the expenses and income that the entity has.

Their work is not exempt from responsibility, since they are accountable to their supervisors or to the financial advisory area.

This professional must also have some legal knowledge.

Another of his functions is to control that the entity complies with its tax obligations being up to date with the payment of taxes.

It also determines which expenses may be deductible and warns in the event of an irregularity.

Finally you will be asked to have a vision of the future, creating a balance of accounts at the end of each year on the basis of which to make proposals for improvements that serve for the company to grow economically and carry out profitable operations.

Public finance, country management

Public finances govern the economic activities carried out in the public sector.

The current economic structures force them to coexist with the operations carried out in the private sector of the economy and to adapt to the trends of the financial markets.

They also aim to achieve profitability even if they are managed by the public sector.

This type of finance brings together all the assets, debts, incomes, assets and financial liabilities of the State, on which the administration of the country’s coffers depends.

The public system has the obligation to meet the needs that may arise in areas such as education, health or dependence.

To do so, it must have the necessary resources obtained from taxes paid by the population and from economic operations such as the sale of government bonds.

How this type of finance works

In order for public finances to be used, different steps have to be taken. The first step is to create the resources based on the income and expenses obtained by the State.

Most of them come from public management, although their achievement depends on the way in which it is carried out.

The next step is to exploit and distribute this benefit to meet the needs that may arise both individually and collectively, and managers must always carry them out for a social benefit and never personal.

For all this to happen, it is necessary to create a platform in which the needs of the health sector, the state of social security, the pension system, employment data or the consequences of technological development are analysed.

Aspect that must be taken into account today.

The State has the obligation to take investment and management decisions taking into account these issues.

The administration of the resources available to central, regional and municipal administrations must be focused on the development of actions aimed at protecting citizens.

And watch over their development by setting up sports, cultural and collaborative projects that seek social welfare.

As well as establishing plans for the creation and maintenance of quality employment, a pillar of the state economy that also helps people feel useful.

Social control over the administration of resources is essential for a democratic state to develop properly.

Although it sometimes does not function in a totally effective way, the Spanish state has different forms of representation that help to carry out this control.

In addition, resource management is decentralised and carried out by the Ministry of Economy and Finance together with local and regional administrations.

Another of the objectives of public administration is also related to control.

In this case, however, it is carried out on the economic activities of private companies, creating a fair and adequate fiscal policy that helps to maintain the state of public finances in a healthy state.

The training and outlets offered by finance

The figure of the manager is increasingly valued in any company and this has led to increased demands around the training required.

It should be borne in mind that to manage resources, make investments and control expenses and income requires extensive knowledge of accounting, statistics, human resources and law.

In addition to possessing financial knowledge, one must also have some social and psychological skills that can be used to manage, motivate and lead teams of people.