Why Do We Study Business Finance?

Business students take classes in a lot of different areas, from accounting to management to marketing. The utility in many of these areas is obvious, but one people sometimes struggle with is finance.

Accounting, for example, is simply keeping track of your own income and expenditures, dealing with hard data from the past. The goal of finance, however, is to maintain the flow of capital and increase the value of a company over time—to predict the future, in other words.

Sure, that makes sense for major corporations being traded on the stock market, but is it really relevant to all businesses? Why is finance so important for every student in a business degree program to study?

Something that’s critical to realize is that even as a start-up, your company is being viewed as a potential investment, and a good investment should bear fruit. Businesses often need outside funding to get started, and few entrepreneurs can (or should) bankroll their own ventures right out of the gate.

Finance is the means of convincing those with the capital you need that you’ll be able to deliver on their investment. It aims to maximize the potential profits, while keeping the risk of losing all that invested capital low. And while pitching a start-up is quite a bit different than running the day-to-day finances of a business, there will be times when you may once again find yourself in that situation, such as when planning major expansions.

But finance isn’t just about securing sources of funding. It also evaluates the potential value that certain undertakings could provide, and helps to decide the course of action which increases the company’s value the most.

For example, you could use knowledge of finance to analyze the costs, risks, and potential profits earned from breaking into a new market:

• What kind of competitors are already established there?
• What size of market share would be necessary to turn a profit?
• What kind of marketing campaigns might be needed to obtain that amount of market share?
• How will increased demand be matched by increased production, without overproducing?

Financial experts will look at the answers to all these questions and more, carefully evaluating whether or not such a business move would be a good idea.

As a business owner, even if you’re not doing these calculations yourself, it’s essential to at least have an understanding of how this data was compiled and presented.

Finance can extend beyond the world of business as well. Personal finance is one clear area that many Americans struggle with. While personal finance is quite different from corporate finance, many of the basic principles translate over well. Rather than increasing the value for your investors, you’re increasing value for your future self, or your inheritors.

Applying finance tactics such as diversification of assets and minimizing risk can help ensure that you’ll be in the best possible place in times to come. Finance also has use in government careers, through what’s referred to as public finance. Public finance often operates on longer time scales than corporate finance, and focuses on how to most efficiently spend a government budget and how to keep the larger economy stable.

Careers in public finance exist from the town or city level all the way up to the federal government, and can be a great fit for those who want to put their knowledge of business to use for the public good.

Ultimately, students of business are studying finance because it’s a central aspect of business. It helps to both acquire sources of funding and use that funding to create the greatest impact in terms of growing the value of a company as a whole.

Beyond its use in business, knowledge of finance also has applications in government, as well as everyday life. While a degree in finance may not be for everyone, just about anyone could benefit from taking a class or two on the subject, and that makes it all the more important for business majors to take it seriously. Finance represents the future of your business, after all, and no one wants to take a chance on someone with no regard for what’s to come.

Ultimately, students of business are studying finance because it’s a central aspect of business. It helps to both acquire sources of funding and use that funding to create the greatest impact in terms of growing the value of a company as a whole. Beyond its use in business, knowledge of finance also has applications in government, as well as everyday life.

While a degree in finance may not be for everyone, just about anyone could benefit from taking a class or two on the subject, and that makes it all the more important for business majors to take it seriously. Finance represents the future of your business, after all, and no one wants to take a chance on someone with no regard for what’s to come.