What Is Finance? By: Lin Ennis

Finance is an umbrella term for the movement of money from one company to another (or individual) to pay for goods or services and repaid with interest. It is also a branch of economics that studies the management of money and other assets. Private corporations in addition to the public sector use the term when they discuss their business assets. Management of finance has also developed into a specialized branch within the financial sector and is carried out by finance managers.

Simply put these managers arrange money to be lent to businesses or private individuals using either money already available from company accounts or from external lenders. The simple process of optimization is used to receive the most from these funds by reducing the cost of arranging the finance while at the same time ensuring returns are high. Bad debts are poor finance management where rules have not been followed; the result of this is depressed markets, low production and a cash crisis. That is why, a fund managers job is stressful as they must be careful where they allocate their funds and the potential risk involved thereafter.

It has been said by a number of people that finance managers can often be 'time' short sighted as they rarely look a the long term 'bigger picture'. Finance managers are in direct opposition to sales managers who know that you have to look forward and plan for the future; if you're preoccupied with what went on in the past you will fail to realize that it is future business that brings in the profits. Unfortunately when you are running a small business, the boundary lines between a personal loan and a business loan can be a little blurred and often the planned arrangement is not used as was not used for its original purpose. Most lenders will cancel the loan if they feel they have been deceived this way because they are unsure what the money is to be invested in.

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. An important area for businesses to receive finance is their own bank or failing that good friends or even relatives. The simple trick is for finance managers to arrange loans using outside lenders thereby protecting their own assets while maximizing their own profit simultaneously. It is a well know fact that by the very virtue of the fact you require money, banks see you as a risk.

And if you'd like to test your knowledge of how much interest you really pay on a 6% mortgage, take a peek at this quiz on The Great Mortgage Revolt. --Lin Ennis is the author of Let Your Mortgage Make You Rich!

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