Business Finance means the funds and credit employed in the business. Finance is the foundation of a business. Finance requirements are to purchase assets, goods, raw materials and for the other flow of economic activities. Let us understand in-depth the Meaning of Business Finance.
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Meaning of Business Finance
According to B.O. Wheeler Meaning of Business Finance includes those business activities that are concerned with the acquisition and conservation of capital funds in meeting the financial needs and overall objectives of a business enterprise.”
Business is identified with the generation and circulation of products and services for fulfilling of needs of society. For successfully doing any operation, business requires money which is known as business finance. Therefore, funds are known as the lifeblood of any business. A business would not function unless there is adequate money accessible for use.
The capital contributed by the businessman to establish the business isn’t adequate to meet the financial needs of the business. Consequently, the businessman needs to search for an option to generate funds. A research of the financial needs and options to fulfill those needs must be done with a specific end goal to arrive at effective financial management to maintain the business.
The fundamental necessities of business would be to buy a plant or apparatus, or it could be to buy raw materials, development of a business that prompts more enrollments, paying wages and so on. The money related necessities of a business can be classified as follows:
- Fixed Capital Requirement: In order to begin a business, money is required to buy fixed assets like land, building, plant and machinery. This is called the Fixed Capital Requirement.
- Working Capital Requirement: A business needs funds for its day to day activities. This is known as Working Capital Requirements. Working capital is required for the purchase of raw materials, paid salaries, wages, rent, and taxes.
- Diversification: A company needs more funds to diversify its activities to become a multi-product company e.g. ITC.
- Technology upgrading: Finances are needed to adopt the latest technology for example use of particular software and the latest computers in business.
What is Capital Structure?
Browse more Topics under Financial Management
- Financial Management and Objectives of Financial Management
- Financial Planning
- Financing Decision
- Capital Structure
Importance of Business Finances
We now know the meaning of Business Finance, let us learn its importance. Business finance is an essential requirement for the establishment of any business. Money is actually the most important tool to bridge the gap between production and sales. Let us take a look at some of the important functions of business finances.
- We require business finances to meet certain contingencies and any unexpected problems that may arise
- Necessary for the promotion of sales
- A requirement to avail any business opportunities that may present themselves
What is Financial Planning?
Solved Question for You
Q: Only large companies require business finance. True or False?
Ans: This statement is False. All companies whether big or small require finance for manufacturing, trading, running costs, etc.
Distinguish between financing decision and investing decision
Make a detail discussion how firms deal with their daily financial decisions?
How does finance functions of financing, investment, dividend, liquidity decisions affects start up,identifying a project, executing the project and rewarding the owners of the business? Use a real life example of manufacturing, hotel, eatery,transportation, private etc. to amplify your answer.
If you are the finance manager, how are you going do an optimum utilization of cash to make the business profitable?
What is the relationship between the three types of decisions?