If you want to be financially aware, even as a non-finance manager, you must be able to look at your actions and the actions of your team in terms of basic financial principles. You don’t have to assign a rand value to every activity, but you should think  about how your decisions will impact the financial well-being of the business.

There are both direct and indirect impacts on the organisation’s finances. For example, you might deny a customer a credit on their bill that they feel they deserve because you are saving money for the organisation. But if that customer leaves your organisation for the competition, you have indirectly impacted the company’s finances in a negative manner because you have lost the future revenue that the customer would have provided.

There are three basic principles that form the framework for all corporate finance:

The Investment Principle

Every business invests assets and incurs debts of some sort, even if the debt is in the form of equity owned by the owner or a partner.

The Financing Principle

Businesses can finance their operations with a mixture of tools that include investments in assets or borrowing money such as through loans or bonds. Or, they could sell stock if they are publicly traded. This mixture can depend on several things such as legal issues, the business’ willingness to take on risk, and the capital available versus the capital needed.

The Dividend Principle

A successful business will eventually need to return some money to its investors. This could be the owner taking some cash out of the till or it could be in the form of stock dividends. Again, it depends on many characteristics of the business such as legal form and requirements, size, and what those receiving the dividends prefer.

The way an organization manages its finances is guided by these three principles. The way in which the principles are applied will vary greatly from organization to organization.