Meaning and Scope of Business Finance

Every business, whether a small tea stall or a large joint stock company, needs money to start, to run and to grow. This need for money, and the activity of arranging and using it wisely, is what the Andhra Pradesh Intermediate Commerce syllabus calls business finance. In simple language, business finance means the funds required by a firm to carry on its activities and the process of acquiring those funds on acceptable terms and then deploying them where they are needed most.

Business finance is often described as the lifeblood of business, because just as blood carries oxygen to every organ of the body, money flows to every department of a firm — purchase, production, marketing, personnel and administration — keeping each one functioning. A business without adequate finance cannot buy raw material, cannot pay wages, cannot install machinery and cannot expand, no matter how good its product idea may be.

The scope of business finance covers two closely linked jobs. The first is procurement of funds — deciding how much money is needed, when it is needed, and from which source (owner's funds or borrowed funds) it should be raised. The second is effective utilisation of funds — making sure the money raised is invested in the right assets, in the right proportion, so that it earns a fair return and is not left idle. A BIEAP Class 11 Commerce student should remember that raising money and using it well are two sides of the same coin; a firm that is careless about either side runs into financial trouble sooner or later.

Business finance is also distinguished from personal finance and public finance. Personal finance deals with an individual's income and spending, and public finance deals with government revenue and expenditure, while business finance is concerned specifically with the funds of a trading, manufacturing or service enterprise run with a profit motive.