It is well said that it takes money to make money! Finances are essential for any businesses for several purposes, ranging from survival in bad times to supporting the next success. How you finance your business can directly affect to pay staff, acquire licenses, purchase goods etc. Thus, finance is required by business for day to day function and to meet essential expenses and payments. These expenses can either be short term or long term.
In terms of running a business successfully, business finance is one of the major aspects. It represents a true and fair view of the business’s position. However, the primary function of the business finance is to maximize the business wealth and to decide which project the company should undertake in order to earn maximum profit.
Other major functions of business finance is that it decides how the projects will be funded, where will be the money come from, will it be from within the company or will the investment be needed from the outside sources like banks or other lending institutions.
However, all the business models must ensure that they maximize their profits, increase their value and are socially acceptable. Capital should be managed in terms of maximizing the profits and increase the value of the firm.
Significance of Business Finance
It is impossible to achieve your long term or short term goals without effectively managing your finances. Inefficient management can lead you liquidity shortage. However, fund is required for market competition, business growth as well as to keep your business operational.
• Starting Capital
Every new venture needs money. While stepping into business, entrepreneurs only have ideas and dreams until they have some capital to give their ideas a motion. A small business finance leaves you way out of tension to own and have good grip over your company as well as leaves you lasting financial obligations.
• Short Term Activities
If you do not have enough finances to cover your short term expenses, chances are there that your business can come to a halt. Creditors can claim for payment for their delivered items or services. Failure to meet these demands can cause supply scarcity or damaged business relations. Business finances can however help you smooth outflow of money and the amount of finances required to meet those outflows.
• Long Term Activities
In order to achieve long term goals like purchasing machines, long term source of finances is required. Relying on short term sources might lead to the finance shortage and could stall projects. Given a set amount of finances, your financial objectives will shape on how you spend your business funds.
Thus, last but not the least, finance serve an essential role to any company, as it has to do a lot with business funds. As money is the backbone and propeller of business companies can be stagnancy without people managing business finances.