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Business and Finance

Business and finance are terms mostly relevant in the realm of economics. They are activities which people engage in for the benefit of earning profit. Business and finance are two unequal and distinct concepts, but they are also interrelated. Knowledge of both business and finance is required for efficient profit generation.

Business can refer to the activities or processes through which profit is realized. It can also refer to the establishment and the structure through which profit is generated. Profit can be money as is the usual case, but a business can also be engaged in to realize a less tangible profit like political power.

A classic case of a business for monetary gains is a domestic help agency renting out its services to people who need housekeeping or babysitting services. The business spends money (capital) with the expectation of earning more money than has been spent. An example of a business that has political power for its intended profit is a nongovernmental organization concerned with promoting women's rights. Money is spent for operations with the expectation of increase in women's power in political decision making.

A business may also become a combination of the first two types. A business may start out with the goal of earning monetary profits but in so doing, it strengthens its power because it gains the resources through which changes for its good can be made. The business which has money and the inclination to use it can lobby more for legislation that favors it. Likewise, a business initially concerned with political power may also gain monetary profits. Its increasing power base leads to its popularity. More people contribute to it and this money can be used for investments which might gain the organization profits.

There are different types of businesses: single proprietorship or a business owned by one individual alone, and its employee may be the owner alone or there may be more; partnership or a business owned by more than one person; and corporation or a business entity that can be publicly traded or not and is recognized as an individual by the law with its own taxes, assets and liabilities.

A business entails organization and allocation of resources (people, structures, equipments, and money). For the business to thrive and survive, a business manager must properly apportion these resources for the maximal return on investment. That is why knowledge of finance, among other things, is very crucial.

Finance is the science of generating, allocating and managing a business' money and assets. To generate money, finance involves acquiring investments or generating equity for business operations. Thus, finance entails making growth projections or forecasts with an eye on the risks involved in the business projects or ventures. To allocate resources, finance involves budgeting and asset allotment, and here too, an awareness of the risks involved is required. To manage a business' money and assets, finance involves accounting, auditing as well as bookkeeping functions. Simply speaking, finance encompasses all activities that pertain to money management.