In the broadest sense of the term, we could define finance as a discipline that deals with money management. In contemporary economy, money is the keystone on which activity of individuals, families, businesses and the state is based. In exchange for money, people perform services, sell goods and goods are bought. Nowadays money fulfils at least three important functions: it is a mean of exchange, a unit of measurement of value and a deposit of value.

Finance is the discipline that studies money management we can divide it into personal finance, business finance and public finance. Personal finance is concerned with the financial issues of the individual (such as how to invest savings or how and where to get a loan). Public finance deals with the financial issues of the government (such as how to finance public spending, what should be the structure of income and expenses, etc.). Finance at the business level is concerned instead with all those activities within a company that concern the acquisition of the financial means necessary for the business of the company and their management.

Source: Dolenc, P. & Stubelj, I. 2011. Poslovne finance s praktičnimi primeri. Ljubljana.

For the sake of simplification, business finance can be defined as the discipline that deals with the acquisition of the financial means necessary to run a company and the management of such means.

As for the acquisition of financial resources, business finance seeks answers to questions such as: 

• how do we find funding sources for the company and with which financial instruments,
• how much does a certain financing structure cost,
• how the financing structure should look like, or what should be the ratio between own capital and debt capital,
• what should be the structure of the company's financing in relation to the duration of each loan,
• what the payment policy for suppliers should be.

  At management level, business finance deals with the following issues:

• in order to follow its business goals, towards which projects or investments should a company direct funds to?
• is it worthwhile to invest in financial investments? If so, where to invest and how much?
• What should be the working capital management policy, especially regarding to inventories and accounts receivable?

Source: Dolenc, P. & Stubelj, I. 2011. Poslovne finance s praktičnimi primeri. Ljubljana.

The financial function within a company has the task of making investment decisions and financing decisions. The easiest way to interpret the meaning of both terms is through the presentation of the company's balance sheet (a simplified example for small businesses):

Investment decisions therefore relate to business policies, decisions and questions that relate to the active side of the company's balance sheet.

Financing decisions relate to business policies, decisions and issues that relate to the passive side of the company's balance sheet.

When we speak of financial decisions in general or in a broader sense, then we refer to both investment as well as more narrowly defined financial decisions.

Source: Dolenc, P. & Stubelj, I. 2011. Poslovne finance s praktičnimi primeri. Ljubljana.

A company can significantly influence its performance and the achievement of its business goal by making the right financial choices. Therefore, every company or entrepreneur must make the appropriate financial decisions. The financial decisions that a company must take, and the amount of effort that should be dedicated to finances, may vary depending on the size of the company (ie. turnover size and structure of the balance sheet), on the sector in which it operates and on the products or services that it offers.

 A micro company with one employee obviously has to make less complex financial decisions. These are likely to address mainly short - term policies (eg stock policies, customer receivables...) and perhaps the company’s financing structure. Apart from simpler financial decisions, larger production companies must also make complex ones, like for example decisions on the economic viability of certain long-term investments, decisions on types and forms of long-term debt financing, decisions on the financing structure, etc.

 Anyhow, financial decisions are one of the key business decisions of a company and they are shaped by the above-mentioned factors.

 Some entrepreneurs or micro-company owners mistakenly think that such decisions can be delegated to the accounting service. The service can advise on certain solutions (that are more or less related to accounting), but the final decisions must be taken by the company/entrepreneur, since most financial decisions have long-term consequences and – as said before -  impact on the success and the attainment of the company’s business goals.

Source: Dolenc, P. & Stubelj, I. 2011. Poslovne finance s praktičnimi primeri. Ljubljana.