Finance of commercial organizations is a certain group of economic relations aimed at making a profit or finding sources of financing. Such relationships are also quite often called financial or monetary, since they can only arise if at least one side receives a flow of money. This article will focus on the features of the organization of finance in commercial enterprises, as well as methods for their control and distribution.
A little about the functions
So, in simple terms, the finances of commercial organizations are a certain amount of the company's funds that are aimed at making a profit. This definition may mean the net profit of the enterprise, funds raised from investors, securities, and so on. As for monetary functions, it is customary to single out control, reproduction and distribution:
- With the help of the distribution function, the formationinitial capital, which may be formed at the expense of constituent contributions, state subsidies or credit loans. This function allows you to distribute the initial funds in such a way that they bring maximum profit in the future. In addition, the distribution also affects the moment of receipt of proceeds, when you have to share the net profit between investors, depending on the interest on their contribution.
- The reproduction function ensures the improvement of the production process and the use of innovative technologies. That is, the company must direct part of the finances to ensure that the enterprise is constantly developing, and profits are increasing. If this function is not fully implemented, sooner or later competing companies will take over the corporation.
- The financial control of a commercial organization is based on a detailed analysis of the work of the management personnel and accounting. Control activities are aimed at implementing the company's financial strategy and preventing crisis situations. If the director of the company does not follow the cash flow of his business, then sooner or later this will lead to various kinds of shortages or absolute bankruptcy.
Proper attitude to these three functions allows you to get the maximum profit from the company and achieve an increase in the number of products produced. It is most expedient to appoint an experienced financier to a managerial position, who will monitor the quality performance of all these functions, and also inform the owner,if the company is on the verge of bankruptcy.
What is internal control
Finance of commercial organizations is an uninterrupted flow of funds that is used for various purposes. For example, each employer is obliged to pay salaries to employees from the total profit of the company. In addition, it is necessary to regularly send part of the net profit for the development of the organization. That is why it is so important to pay special attention to internal financial control.
First of all, you should hire a qualified specialist who will monitor the status of settlements or payments. As a rule, an accountant copes with such duties. He calculates the company's profits on a daily basis, pays employees wages based on the number of hours worked, distributes money to investors, and so on. All work is based on the use of certain formulas and programs.
Control over the implementation of the funding strategy usually falls on the shoulders of the director or area manager. This person is responsible for ensuring that the quantity of goods or services sold is in line with management's business plan. For this, special motivational programs for employees, special marketing moves are developed, company expenses and write-offs are kept. In addition, the director of the company is obliged to provide the best ways of development, since he is the middle link between the consumer and the owner of the company.
Five principles of organizational finance
In order for an enterprise to bring maximum profit, its finances must follow certain principles. Otherwise, a certain amount of money will always evaporate in an unknown direction, and the buyer will remain dissatisfied due to the fact that the staff shirks from work. However, even the largest company was once at the stage of development, but managed to overcome all difficulties by following certain rules. So, the principles of finance for commercial organizations include the following points:
- financial independence;
- financial self-reliance;
- self-financing;
- self-lending;
- self-insurance.
And these are just the main points that most large companies follow. As you can see, the principles of finance for commercial organizations include five rules that may not be easy to understand right away. In the following sections, you will find more detailed information about each of these points, as well as some practical recommendations that will help you follow the financial principles as clearly as possible.
Independence
The essence of finance for commercial enterprises and organizations in most cases is based on financial independence. It manifests itself in most economic entities and is aimed at creating a constant flow of resources to maintain the production process. However, a novice businessman should understand that the concept of independence here is quiteconditional. No matter how you look at it, there will always be some control on the part of government agencies, and certain rules will not allow you to set prices higher than they should.
Let's give a small example of the financial independence of a company that produces the main consumer product - bread. Initially, investments can be attracted to organize production or loans can be taken from financial institutions. However, the company should always strive for financial independence and invest only its own money in development. In this case, most of the profits will remain within the corporation. However, the state will not allow you to set too high prices for food. Otherwise, shops and supermarkets will simply stop cooperating with you.
Financial self-reliance
As you already know, one of the functions of finance for commercial organizations and enterprises is reproduction. Any enterprise must have a certain start-up capital, which will allow organizing the production and sale of goods. You can get such an amount from the council of founders, investors, the state or a bank. However, any company should strive for independent financial security. And it's not even that part of the profits will have to be paid off the debt. It's just that any entrepreneur must learn to rely only on himself.
As you have already noticed, this principle is quitesimilar to the previous one, but they still have one significant difference. Financial independence means complete control over cash flows (expenses and income), and financial self-sufficiency has only one direction - the money that comes to the company. It can sometimes be extremely difficult to follow this principle, especially given the ever-increasing competition. However, if the company can become independent from others, then this will lead to more income.
Self-lending
As you can see, the classification of the finances of commercial organizations is a rather complicated, but very interesting topic. However, this point deserves special attention, since it is followed by most large companies. Why self-credit? Getting a large sum of money from a bank is not always possible, and the state sponsors business owners very reluctantly. Therefore, one has to resort to a similar method, which shows itself perfectly not only at the development stage, but also in the future.
The simplest example of self-lending is the issue of stocks or bonds. The company puts on the market a certain amount of securities that have a nominal value and promise to bring the owner a certain profit. The proceeds from sales can be used for company development or other purposes. However, after a certain time, the owner of the company will be obliged to pay a certain amount of money to investors in the form of dividends or coupons.
Self-financed
Now you know about the peculiarities of the organization of finance in commercial enterprises in more detail. However, if you want to build a truly large company, we also recommend that you familiarize yourself with the principle of self-financing, which is not as popular as self-lending, but is no less profitable for the enterprise.
So, self-financing means the use of own funds, which can be obtained in a variety of ways. The owner of the firm simply uses his own savings to build the firm and develop it properly. This principle of functioning of the finances of commercial organizations is the most beneficial for the company, but is not very popular, since the owner has to use his own savings.
Many aspiring entrepreneurs confuse this type of finance with the company's internal resources. It should be understood that self-financing does not depend on the profit of the corporation, and internal sources are inextricably linked with it. That is why this principle is not very popular, because no one wants to invest their own money in development.
Self-insurance
Now you know the definition of finance for commercial organizations (the concepts and principles of organization have been described in previous sections), but one important nuance that can be used by companies has not yet been mentioned - this is self-insurance. This principle is a defense againstpossible damages and losses for various reasons. For example, you can create various reserve funds that will be replenished from the total profit of the company. Or you can insure money through third parties for a fee.
Special mention deserves the provision of compensation in case of unforeseen losses. If a cash reserve was formed within the enterprise, then these funds are directed to combat the threat that led to the crisis. Of course, the creation of a reserve fund is not at all mandatory, but this principle allows you to keep the company's money safe and sound.
Financial strategies and their objectives
As mentioned earlier, financial accounting can be implemented through various strategies aimed at generating profit from the enterprise. Features of finance of various forms in commercial organizations allow you to build dozens and even hundreds of multi-pass variations with which you can achieve your goal. In most cases, strategies are individual, but there are also certain rules for creating them that every entrepreneur should follow.
The objectives of financial strategies directly depend on the goals set by the enterprise. For example, a company can use the tactics of analyzing its activities or optimizing working capital. If the organization needs to receive more finance, then investment is used.strategy, the main task of which is to attract the attention of investors. Or you may prefer to study in depth all areas of the company in order to invest in the most promising industry. That is, one organization can have several strategies at once - and this is not surprising.
A few words in conclusion
Finance of commercial organizations is a very complex and deep topic, which is important to study not only for a novice businessman, but also for a successful entrepreneur. Below is a short video that characterizes the basic concepts of corporate finance.
Finance of commercial organizations is a rather complex structure, in most cases depending on the policy and strategy that the company has chosen. For example, you can use all your energy and resources to attract as many customers as possible to buy products. However, it should be understood that in this case, the quality of the goods and the number of satisfied customers can be very seriously affected. An experienced financier must be able to competently analyze each industry and compare available resources with global goals. After all, the finances of commercial enterprises are economic relations that arise in the process of formation of the production assets of the organization and the sale of its products, the formation of its own resources, the attraction of external sources of financing, their proper distribution and correct use.
