Join Jim Stice for an in-depth discussion in this video Entrepreneurs, investors, and facilitators, part of Finance for Non-Financial Managers.
- Now let's think about what's going on outside of companies with regard to finance. Let's think about all the economic activity in the world as a sea, an ocean with three kinds of players swimming around in that ocean. First there are the entrepreneurs, the creators, the doers, organizations with ideas, objectives. These are the companies looking for funding. They're swimming around out there. There are also investors swimming around out there. These are the entities, individuals, companies who have saved money in the past and are now ready to lend it or invest it in somebody else.
Finally, there are facilitators swimming around out there, specialized institutions that will match up the entrepreneurs who have ideas but don't have money with the investors who've got the money. That's the economic environment that we're talking about. So we've got the entrepreneurs who are running companies. We've already talked about what goes on inside companies with regard to finance. Entrepreneurs need to decide what to buy, how to get the money to buy it, and how to manage it once they have it. So let's think about what goes on outside the company in the rest of the economic sea.
What about those investors and savers? What are they thinking about? They're looking at their investment opportunities. Under what conditions, under what circumstances should they provide money to entrepreneurs? Should they lend the money? Should they invest the money? What about their portfolio of investments? They don't want to invest everything in one company, so what different things should they invest in? Then there are the facilitators. There are all kinds of them out there. There are banks, there are mutual funds, there are private equity funds, there are insurance companies, there are invest banks who put deals together.
There are all kinds of entities swimming around out there trying to match those who need money with those who have money. Finance allows us to look at each one of these entities and how they interact one with another. Finance is identifying the necessary resources for an organization, determining how to get the money to buy those resources, and then how to manage those resources efficiently once you have them. That's the broad definition of finance. When we talk about finance, though, we're usually talking about just the middle one, determining the best way to get the money to buy the needed resources.
Should I borrow the money? Should it be invested? If I'm an outside investor, under what circumstances, under what conditions should I provide that capital? And then finally, what about those financial institutions that bring savers and entrepreneurs together? How these three groups work together is a narrow definition of finance, but it's probably the most common. But keep in mind that within a company, finance is much bigger than just obtaining funding. Determining if funding is needed, the amount of funding needed, and how to manage the resources associated with that funding is also part of finance.
- Interpret financial reports and make decisions based on available data
- Manage inventory and receivables
- Create an accurate budget
- Cost a product or service
- Analyze customers
- Understand your income taxes
- Communicate your contribution to the bottom line