What differentiates personal finance from corporate finance?
Finance is a term that implies the management of money. Finance could be categorized into personal finance and corporate finance. Hence, personal finance has to do with the management of money belonging to an individual, while corporate finance has to do with the management of money belonging to an organization. When you have a corporate organization, you should read about money management for businesses’ strategies on US-Reviews. This article discusses what differentiates personal finance from corporate finance.
Who spends the money?
One of the major differences between personal finance and corporate finance is who spends the money. In the case of personal finance, the money is spent by an individual who owns the money, while in the case of corporate finance, the money is spent by an organization. This implies that when it comes to personal finance, the individual who owns the money has the full authority to spend the money as they wish on items that they desire. This is not the case with organizational finance. Even though it is designated employees of the organization that spends the money, they don’t spend the money on what they want as individuals, but rather on the needs of the organization.
Who determines how the money is spent?
In the case of the individual, the individual collecting his paycheck could decide to take it straight to the nearest bar and spend it all on drinks. Nobody will question them. However, the cashier of an organization can’t take the income of the organization for a day and spend on even expenses relevant to the organization without permission and authorization from the right sources. They would get more than a sack as they might be arrested for misappropriation of funds.
Spending money in a corporate organization often goes through a process where the department in need of an item lists out what is needed and sends it to the head of the department who checks to be sure the list is in order. It is then sent to either the accounting department or the MD of the organization, depending on the organization structure. The expense will have to be confirmed before the money is disbursed. Even in organizations where departments are provided with funds to keep their department running, they will still have to send their expenses to the right department to be sure they did not misuse the money.
What the money is spent on
For individuals, the money they have is spent on personal needs, savings, and investments among others. For corporate spending, the spending often bothers around buying raw materials as well as other products and services that are required for the organization to continue to function optimally. Whatever is left after all expenses have been catered for from what the company has earned from sales is regarded as profit. In some cases, some of the profit can be further reinvested into the business towards expanding it. Whatever is left is distributed among shareholders as dividends. If the company is solely owned by an individual or family, they can withdraw the profit for their personal use. In most cases, the profit in corporate organizations is only removed at the end of the company’s financial year.
How the money is gotten
For personal finance, the money is gotten either as salary for working or as profits from a business they are into. For organizations, their income is made from selling products and services to their customers.
Effects of misusing the money
When personal finance is misused, the individual could suffer for days or weeks before they get their next paycheck. They might have to go hungry for days among others. When corporate finance is mismanaged, the company could go bankrupt and shut down. Those responsible for the mismanagement might also be identified, arrested, tried, and jailed. They might also have to forfeit their possessions that could be sold off to recover some or all of the money mismanaged, especially when the mismanagement involved stealing and embezzlement.