Enterprise finance functions

The finances of enterprises as an economic value category in the process of reproduction are manifested through their functions. The functions of enterprise finance are implemented at the microeconomic level, they are directly related to the formation and use of capital and monetary funds of enterprises in the conditions of their economic isolation and the satisfaction of private goods on a reimbursable equivalent basis.

Today, there is no consensus among economists both regarding the number and content of the functions of enterprise finance. However, for the most part, there are 3 key functions of enterprise finance 

Supporting function of enterprise finance

The supporting function of enterprise finance assumes that the enterprise must be fully provided in the optimal amount with the necessary funds, while observing a very important principle: all costs must be covered by their own income. The temporary additional need for funds is covered by loans and other borrowed sources . At the same time, optimization of sources of funds is one of the ways to obtain the highest financial result .

Thus, the providing function of enterprise finance is the systematic formation of the required amount of funds from various alternative sources to ensure the current economic activities of the company and the implementation of the strategic goals of its development. It should be noted here that it is finance in a certain sense that allows and forces the enterprise to use funds from various sources in its activities, including bank loans, loans, attracted funds in order to form the volume of resources necessary for doing business.

Distribution function of enterprise finance

The distribution function of enterprise finance is closely related to the provisioning function. Through the distribution function, the initial capital is formed, formed from the contributions of the founders, the basic proportions in the distribution of income and financial resources are created, an optimal combination of interests of individual commodity producers, economic entities and the state as a whole is ensured. The distribution function is based on the fact that financial resourcesfirms are subject to distribution in order to fulfill monetary obligations to the budget, creditors, and counterparties. Its result is the formation and use of targeted funds of funds, maintenance of an effective capital structure. Distribution relations affect the interests of both society as a whole and individual economic entities, their founders, shareholders, employees, credit and insurance institutions.

The gross domestic product produced in a country is intended for consumption by participants in the production process and others. However, before consumption, it must necessarily be distributed between the state, enterprises and the population. The distribution of GDP created in the sphere of material production occurs primarily at enterprises and other business entities through the distribution function of finance.

The distribution function of enterprise finance is to distribute the proceeds, other incomes and savings received by business entities in the appropriate areas. So, the proceeds received are directed primarily to reimbursement of the cost of the means of production used in the production process, and its remainder – gross income – is distributed to the wage fund for workers in the sphere of material production and net income ( profit ). Part of the net income (profit) is directed primarily to pay the corresponding taxes and payments to the budget, and the rest – to create reserves and funds of the enterprise. The distribution of income and savings received by enterprises is shown in the figure.

In other words, when distributing income and savings with the help of the distribution function of finance, funds and reserves are formed at enterprises, which are subsequently used for various purposes.

The distribution function separates finance from the sphere of action of money and turns them into an independent economic category, a tool for the distribution and redistribution of income and savings, the formation of appropriate funds and reserves. Through this function, the primary distribution and redistribution of GDP, created in the sphere of material production, occurs through the formation of centralized and decentralized funds of funds that are used for the needs of the state and enterprises.

Control function of enterprise finance

The control function of enterprise finance involves the implementation of financial control over the results of production and economic activities of organizations, as well as over the process of formation, distribution and use of their financial resources. With its help, control over the formation of the company’s own capital , the formation and targeted use of funds, and changes in the financial indicators of the enterprise is carried out . The implementation of this function in practice is associated with the use of various kinds of incentives and sanctions, as well as the corresponding financial indicators, on the basis of which the necessary measures are developed to improve the efficiency of all production and economic activities of the enterprise.

The control function of the finance of enterprises is manifested in the control over the implementation by enterprises of the volumes of production and sale of products, making a profit, the formation and targeted use of funds of funds, financial resources of enterprises.

Financial control covers all aspects of the economic activities of enterprises, including the distribution, redistribution, creation and use of all types of resources.

Financial control is control over the formation and rational use of material and financial resources at each enterprise and in the national economy of the country as a whole. The purpose of the control is to check the safety and correctness of the expenditure of material and financial resources in accordance with the current legislation and regulations, as well as to identify and prevent violations during their use.

Control over the economic and financial activities of enterprises is carried out by management bodies and departments of all levels in different directions:

state bodies – regarding the receipt of profit, the correctness of the calculation and the timeliness of the payment of taxes and payments to the budget and centralized extra-budgetary funds;

institutions of banks – regarding the procedure for lending and making settlements for enterprises.

At the same time, control over the activities of enterprises is associated with the application of various sanctions and incentives that contribute to the improvement and enhancement of the efficiency of enterprises.

Thus, the control function of finance allows you to identify the results of the work of enterprises, the shortcomings of their activities, and then take the necessary measures to improve the situation. The control function of finance at the national level is manifested in the organization of cash flows, in the timely formation of centralized monetary funds and their most rational and economical use, in creating certain conditions for the sphere of material production.

In the conditions of the modern economy, finance within the framework of the control function performs a rather important subfunction associated with combating the legalization (laundering) of proceeds from crime . Financial control in this respect is largely administrative rather than economic in nature. The need to strengthen it was caused by a significant increase in these phenomena.