Getting the maximum amount of cash is the main goal of any enterprise. To understand what you possess and how to use it, it is necessary to conduct a competent financial policy. And for this it is necessary to know the theoretical basis of this approach.
What is finance?
This is the name of the system of monetary relations, which expresses the formation and use of trust funds during their circulation. The finances of firms occupy an important position in the economic system of the state, since the bulk of the funds that will be used in the future are formed at their level. They are divided into own and credit (attracted). The first are in an unconditional arrangement at the enterprise and can be used for any purpose. The second will need to be returned over time, paying also interest. So what are the features of enterprise finance? This is not an easy question, so the answer will be divided into several sub-items.
What are enterprise finance?
This is an integral part of the national economic system. These include:
- Pricing.
- Budget financing.
- Tax system.
- The level of monetary circulation.
- Loans
- Foreign economic activity.
- Licensing.
- Revenues.
The following factors have the greatest negative impact on the finances of commercial enterprises:
- Unprocessed emission-monetary policy, which does not take into account the volume of commodity stock and the real interests of the enterprise.
- Price liberalization without the necessary settlement.
- Wrong budget policy.
- Decrease in investment activity.
- Trends in the stock market and credit and banking policy.
- The crisis of payments.
- Erroneous export / import policy.
Principles of enterprise finance
For their organization, it is necessary to adhere to the following postulates:
- Maintain interest in the end results of the work.
- Create financial reserves.
- Responsibility.
- The division of finance into your own and credit.
- Fulfillment of assigned obligations to the budget.
- Financial control of activities and use of funds.
- Independence.
- Self-financing.
The principles of enterprise finance are based on a balance of interests of the private entrepreneur and the state. When deviating from them, levers of influence are provided that will allow the system to return to its original state.
Cash flow ratio
Enterprise finance is an economic element that is constantly on the move. Each direction of spending should have its own source of funding. The following relationships are usually distinguished:
- With buyers.
- With employees of a company or enterprise.
- With banking organizations.
- With the state.
- With management structures that have leverage.
- When participating in other enterprises (such as the distribution of profits derived from joint activities).
- Work with trust funds that have on-farm assignment.
Financial mechanism
It consists of five elements that are interconnected:
- Financial methods. This includes methods of influencing business processes in the use of funds by creating trust funds. The formation of the finance of the enterprise is the main purpose of using these methods. Their feature is that they determine the foundation on which everything else is built.
- Financial leverage. These are actions aimed at achieving the desired goal.
- Legal support. Includes decrees, orders, legislative acts and other similar documentation.
- Regulatory support. This includes instructions, tariff rates, clarifications, guidelines and similar data.
- Information Support. This includes economic, commercial, financial and other data that are valuable in each case. So, information about solvency, financial stability, monetary rates, and so on can act as objects.
As you can see, enterprise finance is such a specific area where you have to act with an eye on a number of factors. Moreover, they can have both an information basis and a legislative one. In the case of choosing the wrong way of interaction, the entrepreneur is waiting for ruin.
Functions
They allow you to understand the content of this area of the enterprise. There are three functions in total:
- Distributive (stimulating). By this, it should be understood that the company makes a decision where the money received will go. With its help, funds are formed to fulfill all the obligations that the organization has to staff, the budget, counterparties and creditors. If everything is done with a reasonable approach, then the quality of work is stimulated, this can be said about the finances of commercial enterprises and government organizations.
- Control. It consists in monitoring the financial condition of the organization and checking the effectiveness of its work. The most important is the control of profitability of the enterprise. This function is implemented in two ways:
- Tracking indicators that are in operational, accounting and statistical reporting.
- Under the influence of financial influences (taxes, subsidies, benefits).
- Serving (reproducing). This function ensures that there is a constant renewal of consumed resources (as an example: the purchase of new materials, the hiring of new workers to replace retired people, and so on).
Structure
Financial resources at its origin can be conditionally divided into three components:
- Formed by their own means. This includes profit received from the main activity, sale of property, targeted income, various contributions and so on.
- They were mobilized in the financial market. This includes funds received from the sale of securities, interest and dividends, loans, income received from operations with foreign currencies.
- Received after redistribution. These are insurance indemnities, financial resources (which came from other business entities), resources (which were formed on a share basis) and budget subsidies.
Control
Formation, as well as the use of financial resources, is not possible if there is no system that organizes and coordinates everything. Management implies the achievement of strategic and / or tactical goals regarding the functioning of the enterprise itself. Features of the organization of enterprise finance include:
- Formation of financial resources, as well as their optimization.
- Placement of capital.
- Analysis of the finances of the enterprise and the direction of cash flows that circulate through it.
- Management of the functioning of capital.
- Organization and management of relations with other enterprises, insurance companies, budgets, banks and other units of the financial structure.
Conclusion
As you can see, enterprise finance is a complex component of any commercial organization. They must be able to handle and rationally use. Any manager should be aware that the finances of enterprises are the main guarantee of its functioning, and you should always work with them in terms of optimality and efficiency.