‘Business Finance’ refers to the amount and sources of money required for business purposes. So, it involves procurement and utilization of funds to carry out business operations effectively and efficiently.
Need of Business Finance
1. Purchase of fixed assets:
A large amount of money is required for purchase of fixed assets like land and building, furniture, machinery etc.
2. Meeting day-to-day expenses:
When a business is established, funds are needed to carry out day-to-day operations e.g., purchase of raw materials, payment of rent and taxes, telephone and electricity bills, wages and salaries, etc.
3. Business growth:
Growth of business may include expansion of existing line of business as well as adding new lines i.e. diversification. Funds are also needed for financing modernization of business.
4. Time gap between production and sales:
Normally, there is a time gap between production, sales and realization of cash. During this time interval, funds are required to pay various types of expenses.
5. Contingencies:
Funds are required to meet some unforeseen problems. Like shortage of material, machinery breakdown.
6. Business opportunities:
Funds are also required to avail of business opportunities. Suppose a supplier is offering the material at a discount of 20% to the buyer purchasing the whole lot lying with the supplier. It is possible only if funds are available with the business.
Importance of Business Finance
Finance is considered as the life blood of every business.
(a) Need for Large Scale Operation:
To survive in the business world the businessman has to expand the horizon of his activities and function on large scale. This expansion of business always demands more funds.
(b) Use of Modern Technology:
As the business has to use the latest technology to fight the competition and needs of growing business, it needs large amount of funds.
(c) Promotion of sales:
Business needs funds for advertisement, personal selling, and use of sales promotional schemes, providing after sales service and free home delivery, etc. for the ultimate aim of increasing sales.