How important is finance in business? Why people say finance is the blood of business?

Finance is the elixir that assists in the formation of new businesses, and allows businesses to take advantage of opportunities to grow, employ local workers and in turn support other businesses and local, state and federal government through the remittance of income taxes. The strategic use of financial instruments, such as loans and investments, is key to the success of every business. Financial trends also define the state of the economy on a global level, so central banks can plan appropriate monetary policies.

Venture capital is an area of finance that specializes in funding new companies and their expansion efforts. Trade finance makes international trade possible by issuing Letters of Credit (LOC) used to purchase goods from overseas companies. An LOC funds the manufacturing of products when a company uses the LOC as collateral for a manufacturer's loan. Bank loans help finance accounts receivable, and credit cards help finance a company's travel and entertainment expenses. All this activity in turn serves to keep money flowing throughout the global economy.

Finance is the process of creating, moving and using money, enabling the flow of money through a company in much the same way it facilitates global money flow. Money is created by the sales force when they sell the goods or services the company produces; it then flows into production where it is spent to manufacture more products to sell. What remains is used to pay salaries and fund the administrative expenses of the company.

The flow of finance starts on Wall Street with the creation of capital used to fund business through the issuance of common stock to provide capital, bonds to lend capital and derivatives (packaged groups of securities that help to hedge against financial risk and replace the money banks lend out to borrowers). Public companies and municipalities use this capital to help fund their operations, and banks use it to lend to companies, municipalities and individuals to finance the purchase of goods and services.

When some element of the finance process breaks down companies go out of business and the economy moves into recession. For example: If a major bank loses a significant amount of money and faces the risk of insolvency, other banks and corporate customers will stop lending or depositing money to the problem bank. It will then stop lending to its customers and they will not be able to purchase the goods or pay the bills for which they were seeking funding. The flow of money throughout the financial system slows down or stops as a result.

All facets of the global economy depend upon an orderly process of finance. Capital markets provide the money to support business, and business provides the money to support individuals. Income taxes support federal, state and local governments. Even the arts benefit from the financial process because they draw their money from corporate sponsors and individual patrons. Capital markets create money, businesses distribute it, and individuals and institutions spend it.

Money helps businesses hire staff, produce product and rent facilities for office space. Most companies will seek financial support for an investor or equity partner. Without a financial backing, a business cannot exist.

It's important that leadership within an organization has a good understanding of finance. This will ensure that the business can effectively manage the money that they have to ensure that they hit budgetary targets and goals. In doing so, they have a better chance of succeeding at their mission and goals as an organization.

agree with experts answer...........

because without finance you cannot obtain the necessary tools to grow your business or even establish it.

“Finance”, is consider the most important function in the organization for many of the management experts and scientists, as they usually consider same as the “heart” in human being, which actually is feeding blood to all the organization activities during its life cycle.

Despite of that the narrow view for “Financial Function” in business is only to achieve “Liquidity” and “Profitability” for the organization, i.e. ensure that adequate cash must be generated or borrowed to meet obligations and to yield a profit to shareholders and that each operating sector in the organization must contribute to this objective, by adequate a rate of return on investment (ROI), allocated to them.

In fact the financial function now a day, is extended to cover the following managerial activities too:

I- Planning: for operations, growth, adjustments and readjustments.

II- Coordinating and controlling: for accounting, budgeting and reporting.

III- Financing: for ensuring the availability of funds, allocating funds to alternate uses.  

IV-  Costing: for measuring, controlling both the cost of capital and organization costs.

V-  Pricing: for frofit requirements in pricing and impact of pricing on profitability.

VI- Forecasting: for the overall economic and industrial trends, organization’s operations, financial requirements, profit planning and estimating the rate of return on investment (ROI).

VII-   Other activities including: credit and collections, fixed asset and inventory management, insurance, pensions and welfare, tax management and represents the organization against all regulators and auditors.  

It would not be possible to run business without finance so it could be considered the most important element of business. Finance is said to be blood of business as it support business like lifeline to it.