Importance Of Finance In Business

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Finance is the backbone of any business. Hence it is rightly known as the art and science of managing monetary resources of a business concern and is extremely important for the survival of a business entity. It plays an important role, right from the generation of the business idea to its day-to-day functioning and up to the liquidation stage of a business. Finance helps in procurement of various resources such as raw materials, machinery and equipment, human resources etc. and helps to maintain the smooth flow of business operations. Therefore, an efficient and healthy financial management system in an organization is very essential. The discipline of finance is concerned with the sources, allocation, application and usage of money by a business…show more content…
Owing to the extremely large number of categories of stores coupled with huge product mix in terms of product width, depth and length being offered by various manufacturers to suite the ever changing tastes and demands of the customers, this requirement of holding stocks commensurate with your business outlook, results in considerable costs to the company. Types of Inventory / Stock There are five basic inventory types. These are raw materials, work-in-progress, finished goods, packing material and MRO (Maintenance, Repair and Operating) supplies. We can also classify them as manufacturing and merchandise inventory. There are also other ways of classifying the same, which include buffer stock, goods in transit, decoupling inventory, anticipatory stock, and cycle inventory. Let us take a look at these types of inventory in detail. Types of Business. Trading or merchandising, Manufacturing, and Services are the basic types of business. While Services do not hold much inventory, the other two businesses are heavy inventory-handling in nature. Therefore Merchandise and Manufacturing become the two types of inventories based on the business…show more content…
In manufacturing business, it is very essential to ensure that plant and machinery is always kept running. It should be kept in mind that any act of stopping the machinery will result in costs to the entrepreneur in terms of repairs, idle time depreciation, additional set up costs, damages, trial runs etc. The reason for halt is not always demand of the product. It could be because of non-availability of input. In a production line, one machine/process uses the output of other machine/process. The speed of different machines do not always integrate with each other. For this reason, the stock of input for all the machines should be kept in adequate quantities so as to keep the factory running. Such inventory is called decoupling
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