Importance of Business Finance.The business community and people use different means (sources) of payment like currency, cheque and bills of exchange etc. for the settlement of business dealings or transactions. Therefore, the arrangement of these sources is very essential for the life of business.
Importance of Business Finance In Business.
The money (capital) obtained for the purpose of business is spent on the purchase ol land, buildings, building, machinery, furniture and routine expenses. The arrangement of capital, its management and use for business transactions is called business finance or investment.
DEFINITIONS:
- “Finance consists of providing and utilizing the money, capital, rights, credit and funds of any kind which are employed in the operation of an enterprise”, .
(George Terry)
- “Business finance is concerned with acquisition and utilization oj capital funds in meeting the financial needs and overall objectives of business enterprise”.
(B.O. Wheeler)
- “Business finance is the flow of capital and credit that makes business possible”.
(Kriz and Duggen)
Main Points of Definition
- Flow of capital and credit.
- Employed in the operation of an enterprise.
- To achieve the objectives of business.
NATURE OF BUSINESS FINANCE
From the above definitions, the following characteristics of business finance can be derived:
- Business finance includes all types of capital or funds used in business.
- Business finance is needed in all types of businesses (large or small and manufacturing or trading etc.).
- Business finance involves not only the estimation of the amount of funds but also the sources of finance, investment of funds raised, management of cash, disposal of earnings and control of funds.
- The amount of business finance required differs from one business firm to another depending upon its nature and size.
The availability of finance determines the scale of operation of business.
- Purchase of Assets:
When a business is established many assets like land, building, plant and machinery etc. are purchased to run the business. The purchase of these assets is possible with finance.
- Repair and Maintenance:
For the proper working of assets repair, renewal and maintenance is necessary. The maintenance of assets cannot be done without finance.
- Purchase of Goods I Raw Material:
Purchase or import of goods, raw material and many Other items are necessary for the business. The purchase of these items is made by means of finance.
- Research Work:
Technological changes and research work at the business research centre or purchase of technology is essential for successful business. The finance is useful for it.
- Routine Expenses:
For the payment of routine expenses like salaries, wages, carriage, rent, repair, interest, commission etc., most liquid asset is desirable and that is finance.
- Services of Communication:
Business managers use telephone, telegraph facilities, radio, T.V, newspaper etc. as the tools for increasing sales. The payment of these services is made through finance.
- Risk Coverage:
Businessmen are not free from risks. There are chances of loss due to theft, fire, flood, war, earthquake. But the finance helps the business people to cover the risk of loss through insurance.
- Services of Experts:
A business must be in the hands of experts and experienced professionals to run the business affairs on most modem lines. The finance can provide the services of the trained management force for the best interest of business.
- Taxes and Duties:
Claims of government in the shape of sales tax, income tax and excise duty are paid with the help of finance.
- Retirement Benefits:
Employees of the company need financial help after retirement. The company needs finance to set up a pension fund for their workers.
- Change in Business:
A trader can change the nature of business. The finance helps to complete the sale of old assets and purchase of new assets.
- Expansion in Business:
Expansion in the size of business is possible due to finance. It puts the men, machinery and material at work.
- Training of Employees:
Training of employees to run the business effectively is necessary from time to time and the salaries of instructors are paid with the help of finance.
- Invention:
Invention of new products and their availability for business is only possible with the help of business finance.
- Storage Charges:
A trader has to buy goods according to the demand of his customers and these are stored in form of stock. Business finance is necessary to meet storage charges.
