Finance 

First we are looking for what is finance and what are function and process of finance.

what is the finance (small definition )

Finance is a broad term that describes two related activities: the study of how money is managed and the actual process of acquiring needed funds. It encompasses the oversight, creation and study of money, banking, credit, investments, assets and liabilities that make up financial systems.

There are three type finance. 

• Personal finance 
• Public finance 
• Corporate finance 

First what is personal finance:

Financial planning generally involves analyzing an individual's or a family's current financial position, and formulating strategies for future needs within financial constraints. Personal finance is a very personal activity that depends largely on one's earnings, living requirements, goals and individual desires.

Second what is public finance:

Public finance includes tax, spending, budgeting and debt issuance policies that all affect how a government pays for the services it provides to the public.

Third what is corporate finance 

Corporate finance consists of the financial activities related to running a corporation, usually with a division or department set up to oversee the financial activities.

Here some more example about personal finance.

Personal finance example: individuals need to save for retirements expense, which means investing enough money along the way to properly fund their long-term plans. This type of financial management decision falls under personal finance

Financial Planning Process:

Financial planning in six steps 

Financial Planning Process consist of six steps that financial planning professionals use to consider all aspects of a client’s financial situation when formulating financial planning strategies and making recommendations. Scroll down to learn about each step in the process.

1. The financial planning professional informs the client about the financial planning process, the services the financial planning professional offers, and the financial planning professional’s competencies and experience. The financial planning professional and the client determine whether the services offered by the financial planning professional and his or her competencies meet the needs of the client. The financial planning professional considers his or her skills, knowledge and experience in providing the services requested or likely to be required by the client. The financial planning professional determines if he or she has, and discloses, any conflict(s) of interest. The financial planning professional and the client agree on the services to be provided. The financial planning professional describes, in writing, the scope of the engagement before any financial planning is provided, including details about: the responsibilities of each party (including third parties); the terms of the engagement; and compensation and conflict(s) of interest of the financial planning professional. The scope of the engagement is set out in writing in a formal document signed by both parties or formally accepted by the client and includes a process for terminating the engagement.

Collect the client’s information. 

2. The financial planning professional and the client identify the client’s personal and financial objectives, needs and priorities that are relevant to the scope of the engagement before making and/or implementing any recommendations. The financial planning professional collects sufficient quantitative and qualitative information and documents about the client relevant to the scope of the engagement before making and/or implementing any recommendation.

Analyze  and assess the client’s financial status

3. The financial planning professional analyzes the client’s information, subject to the scope of the engagement, to gain an understanding of the client’s financial situation. The financial planning professional assesses the strengths and weaknesses of the client’s current financial situation and compares them to the client’s objectives, needs and priorities

Develop the financial planning recommendations and present them to the client.

4. The financial planning professional considers one or more strategies relevant to the client’s current situation that could reasonably meet the client’s objectives, needs and priorities; develops the financial planning recommendations based on the selected strategies to reasonably meet the client’s confirmed objectives, needs and priorities; and presents the financial planning recommendations and the supporting rationale in a way that allows the client to make an informed decision.

Implement the financial planning recommendations.

5. The financial planning professional and the client agree on implementation responsibilities that are consistent with the scope of the engagement, the client’s acceptance of the financial planning recommendations, and the financial planning professional’s ability to implement the financial planning recommendations. Based on the scope of the engagement, the financial planning professional identifies and presents appropriate product(s) and service(s) that are consistent with the financial planning recommendations accepted by the client.

Review the client’s situation

6. The financial planning professional and client mutually define and agree on terms for reviewing and reevaluating the client’s situation, including goals, risk profile, lifestyle and other relevant changes. If conducting a review, the financial planning professional and the client review the client’s situation to assess progress toward achievement of the objectives of the financial planning recommendations, determine if the recommendations are still appropriate, and confirm any revisions mutually considered necessary.

Feature of finance 

1. Investment Opportunities

In Finance, Investment can be explained as a utilisation of money for profit or returns.

1. Creating physical assets with the money (such as development of land, acquiring commercial assets, etc.),
2. Carrying on business activities (like manufacturing, trading, etc.), and
3. Acquiring financial securities (such as shares, bonds, units of mutual funds, etc.).

Investment opportunities are commitments of monetary resources at different times with an expectation of economic returns in the future

2. Profitable Opportunities

In Finance, Profitable opportunities are considered as an important aspiration (goal).

Profitable opportunities signify that the firm must utilize its available resources most efficiently under the conditions of cut-throat competitive markets.

Profitable opportunities shall be a vision. It shall not result in short-term profits at the expense of long-term gains.

For example, business carried on with non-compliance of law, unethical ways of acquiring the business, etc., usually may result in huge short-term profits but may also hinder the smooth possibility of long-term gains and survival of business in the future.

3. Optimal Mix of Funds

Finance is concerned with the best optimal mix of funds in order to obtain the desired and determined results respectively.

Primarily, funds are of two types, namely,

1. Owned funds (Promoter Contribution, Equity shares, etc.), and
2. Borrowed funds (Bank Loan, Bank overdraft, Debentures, etc).

The composition of funds should be such that it shall not result in loss of profits to the Entrepreneurs (Promoters) and must recover the cost of business units effectively and efficiently.

4. System of Internal Controls

Finance is concerned with internal controls maintained in the organisation or workplace.

Internal controls are set of rules and regulations framed at the inception stage of the organisation, and they are altered as per the requirement of its business.

However, these rules and regulations are monitored at various intervals to accomplish the same which have been consistently followed.

5. Future Decision Making

Finance is concerned with the future decision of the organisation.

A "Good Finance” is an indicator of growth and good returns. This is possible only with the good analytical decision of the organisation. However, the decision shall be framed by giving more emphasis on the present and future perspective (economic conditions) respectively.

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