Q.What is business finance? Explain its need and significance in the business.

Business finance is the money and credit employed in business to acquire fixed and current assets and to run operations. It is needed to promote the business, to meet fixed-capital needs (land, building, machinery), to meet working-capital needs (wages, raw material, stock, credit to customers), for expansion and modernisation, to meet contingencies and to replace assets. Its significance is that finance is the lifeblood of business — without adequate, timely and well-managed finance no enterprise can be started, operated, grown or sustained.

Meaning of Business Finance

Business finance refers to the money and credit employed in business. It covers raising the capital, using it in the most profitable way and managing it efficiently. Every activity — purchasing machinery, paying wages, buying raw material, advertising, giving credit to customers — requires money, and the provision of this money is business finance.

Need for Business Finance

1. To promote / start the business — money is needed to meet preliminary expenses such as registration, promotion and legal costs.
2. Fixed capital needs — to buy fixed assets like land, building, plant, machinery and furniture, which are needed permanently.
3. Working capital needs — to meet day-to-day expenses such as wages, salaries, rent, purchase of raw material, holding stock and allowing credit to customers.
4. Expansion and modernisation — to increase capacity, adopt new technology and launch new products.
5. To meet contingencies — to face unexpected situations like a fall in sales, strikes, fire or loss.
6. Replacement of assets — to replace old and worn-out machinery and equipment.

Significance of Business Finance

1. Lifeblood of business — just as blood is essential for the body, finance is essential for every business activity.
2. Smooth running — adequate finance keeps production, purchase and sales running without interruption.
3. Growth and expansion — timely finance enables the firm to grow, diversify and compete. …