Finance is a broad term that describes activities associated with banking, leverage or debt, credit, capital markets, money, and investments. Basically, finance represents money management and the process of acquiring needed funds. Finance also encompasses the oversight, creation, and study of money, banking, credit, investments, assets, and liabilities that make up financial systems.

The strategic use of financial instruments is key to the success of every business. For every entrepreneur or business activity, finance (capital and funds) are required as without it the entrepreneur cannot function. Financial trends also define the state of the economy on a global level, so central banks can plan appropriate monetary policies.

In the modern age, for every entrepreneur or business activity, finance (capital and funds) are required, as without it the entrepreneur cannot function finance is the lifeblood of all economic activities.

What is the main purpose of business finance? Why is finance so important?

  • Establishment of Business Enterprises
  • Efficient Operation of Business
  • Development and Extension of Business
  • Sound Business Position
  • Facing Competition
  • Arranging Infrastructural Facilities
  • Modernization of Business
  • For Marketing Expenses
  • Labour Welfare and Social Security
  • Other Needs

Finance sub-categories:

Finance can be split into three sub-categories: public finance, corporate finance and personal finance. There is also the recently emerging area of social finance and behavioral finance which seeks to identify the cognitive (e.g., emotional, social, and psychological) reasons behind financial decisions.

Personal finance

Personal financial planning generally involves analyzing an individual's or a family's current financial position, predicting needs and executing a plan to fulfill those needs. Personal finance includes the purchasing of financial products such as banking, credit cards, insurance, mortgages, and various types of investments.

Corporate finance

Corporate finance refers to the financial activities related to running a corporation, usually with a division or department set up to oversee the financial activities. Corporate finance is primarily concerned with maximizing shareholder value through long and short-term financial planning and the implementation of various strategies. Corporate finance activities range from capital investment decisions to investment banking.

Public finance

Public finance includes tax, spending, budgeting, and debt issuance policies that affect how a government pays for the services it provides to the public. The federal government helps prevent market failure by overseeing the allocation of resources, distribution of income, and economic stability. Regular funding is secured through taxation, borrowing from banks, insurance companies, and other nations.

Social finance

Social finance is an approach to managing investments that generate financial returns while including measurable positive social and environmental impact. A social investment loan is not a grant or donation; it’s repayable, often with interest.

Social finance is often used to describe the lending and investment into companies who consider themselves social enterprises, charities, co-operatives, and other impact-focused organisations. The term can include community investing, microfinance, investing in socially-responsible and sustainable businesses, social impact bonds, and social enterprise lending.

Behavioral finance

Behavioral finance proposes psychology-based theories to explain stock market anomalies, such as severe rises or falls in stock price. The purpose is to identify and understand why people make certain financial choices.  Within behavioral finance, it is assumed the information structure and the characteristics of market participants systematically influence individuals' investment decisions as well as market outcomes.