Q.What is business finance? Why do businesses need funds? Explain.

Every activity a business carries out, from buying assets to running daily operations, needs money, which is why finance is often called the lifeblood of business.

What business finance means

• Business is about producing and distributing goods and services to satisfy society's needs, and every one of those activities needs money.
• The money a business requires to carry out its various activities is called business finance. Because money keeps the enterprise alive, finance is often described as the "lifeblood" of business — no business can function without an adequate supply of funds.
• The capital an entrepreneur contributes at the start is rarely enough to meet every requirement, so the owner must look to other sources as well. Judging how much finance is needed and identifying the right sources for it is therefore a vital part of running any organisation.

Why businesses need funds — the need begins the moment a person decides to start a business and recurs continuously thereafter. It falls into three broad purposes:

• Fixed capital requirements: Funds to buy fixed assets such as land and building, plant and machinery, and furniture and fixtures. This money stays invested for a long period. A trading concern usually needs far less fixed capital than a manufacturing concern, and a large enterprise needs more than a small one.
• Working capital requirements: Funds for day-to-day operations — holding current assets (stock of materials, bills receivable) and meeting current expenses (salaries, wages, taxes, rent). A firm that sells on credit or has a slow turnover needs more working capital than one that sells for cash or turns over stock quickly.
• Growth and expansion: As a firm grows, both fixed and working capital needs rise. Extra funds may be needed to upgrade technology (to cut production cost), build larger inventories for a festive season, meet current debts, expand, or shift to a new location.

Why the study matters: Because these needs are varied and keep changing, a business must evaluate the different sources from which funds can be raised, so that every rupee is matched to its purpose.