Basics of Financial Management – Part 5

The importance of financial management and its relationship with other functional areas of management may be summarized as –

Finance and production: Business finance has significantly facilitated production, particularly large-scale production. Now, large-scale production requires huge raw materials, work in process inventory, good number of employees, and a large inventory of finished goods stock to place it in the wider market area. Huge working capital is required for maintaining a steady supply of raw materials to the production system and maintaining a stable workforce and other infrastructure to continue production.

Finance and Distribution: In the era of globalization, distribution of product is not limited to domestic market. It is an advantage for the customers to get products produced in any part of the country or anywhere in the world. For maintaining a wider distribution channel, finance is required. Further, if progressive payment or credit is to be extended to the buyer, the company will require huge capital to maintain distribution in the market and, thereafter, to realize revenue from the wholesalers/dealers/agents/retailers or direct consumers.

Finance and industrialization: Business finance and industrial development go hand in hand. They are the cause and effect of development for each other. Business finance plays a dominant role throughout the life span of an industry. The organization which ignores the element of business finance is bound to meet its doom at an early date. Finance for business equally plays important role in regional development and decentralization of economic activities and no area can be industrialized without it. The availability of finance for business can never be overlooked while analyzing various factors of location of a factory.

Planned Economy and Finance: Planned economic growth is not possible without business finance. Finance, being of utmost importance to economic growth, becomes an integral part of planning. So, please do always keep it in mind!