The role of finance

An accountant may be compared to a skilled laboratory technician who takes blood samples and other measures of a person’s health and writes the findings on a health report (a set of financial statements). A financial manager for a business is the doctor who interprets the report and makes recommendations to the patient regarding changes that would improve health. Financial managers use the data prepared by the accountants and make recommendations to top management regarding strategies for improving the health (financial strength) of the firm.
A manager cannot be optimally effective at finance without understanding accounting. Similarly, a good accountant needs to understand finance. Accounting and finance, finance and accounting – the two go together like bread and butter.
As you may remember, financing a small business is a difficult but critical function if a firm expects to survive those important first five years. The simple reality is the need for careful financial management is an essential, ongoing challenge a business of any size mast face throughout its entire lite. Financial problems can arise in any type of organization. Chrysler Corporation faced extinction in late 1970s due to severe financial problems. Had it not been for a government-backed loan of SI billion. Chrysler may have joined the ranks of defunct auto companies such as Packard. Similarly, obtaining start-up money for small businesses has rarely been harder than now. Bad real estate loans have siphoned off money that banks may have loaned to small businesses, and the recession has left little spare cash available for investments in small business. Three of the most common ways for any firm to fail financially are the following:
1. Undercapitalization (not enough funds to start with).
2. Poor cash flow (cash in minus cash out).
3. Inadequate expense control.



The role of finance