Finance is the lifeline of every business as it helps in the overall conduct, growth, and expansion of a business. It is next to impossible to conduct a business without finance. Therefore, it is imperative and unavoidable to thoroughly understand the working of business finance. In the subsequent sections of this article, we’ll cover – what is business finance, what is financial management, and various other aspects of business finance.
Meaning of Business Finance
Business finance is the cornerstone of every organization. It refers to the corpus of funds and credit employed in a business. Business finance is required for purchasing assets, goods, raw materials and for performing all other economic activities. Precisely, it is required for running all the business operations.
To understand what business finance is, we must know that business finance includes activities concerning the acquisition and conservation of capital funds for meeting an organization’s financial needs and objectives. The importance of business finance is evident from the fact that business finance is required to undertake every business operation successfully.
The amount of capital that is pooled by a business owner into their company is often not enough to meet the financial needs of a company. Herein, the importance of business finance and its management rises even more. Consequently, business owners along with their teams look out for various other ways to generate funds.
A business may require additional funds for anything ranging from buying plant or apparatus, raw materials or further development. Different types of business finance are:
- Fixed Capital
- Working Capital
- Technology upgrading
Importance of Business Finance
Here are some reasons why business finance is important for all organizations:
Maximization of wealth
Business finance ensures that a shareholder’s wealth is maximized. It is also important to understand that wealth maximization is different from profit maximization. Wealth maximization is holistic and ensures the growth of an organization.
Ensure constant availability of money
For any business to survive, it should be in optimum financial condition. This includes the availability of funds at the time they are needed. Unless there are enough funds, the business may not be able to function properly.
Attaining optimum capital structure
This requires a perfect combination of shares and debentures. This way the organization will be able to maintain a perfect balance and not give away too much equity.
Effective utilization of funds
This is another reason for the high importance of business finance and its efficient utilization. A business should be able to cut down unnecessary costs and not invest funds in assets that are not required. An exhaustive course in financial management, diploma in banking and finance or any other course related to finance can give your career in financial management a head start. Or, if you are already in the field, it can give your career the necessary boost.
What is Financial Management in Businesses?
Now that you know all about what business finance is and its importance, it’ll be easier for you to understand financial management.
Financial management can be defined as the activities involving planning, raising, controlling, and administering money that is used in the business. Financial management involves procuring funds for buying fixed assets, raw materials, and working capital. Now that we know what financial management is, it is also important to understand that proper financial management helps businesses supply better products and services to customers besides offering other benefits.
Business Finance FAQs
State the difference between corporate structure business and partnership type business
A business that engages many workers and employees is known as a corporate structure business. There is no limit on the maximum number of employees that can be employed. These kinds of businesses require high capital. In contrast, only a maximum of 100 partners can be admitted into a partnership-type business. The capital requirement for this type of business is low. If you undertake business management courses, or pursue a business management degree, or a diploma in banking and finance, you’ll get to learn more about it.
Future Scope of Business Finance as a Career Option
The future scope of business finance as a career option is lucrative. With the passing time, as the competition is becoming even more fierce, the importance of efficient financial management is increasing only. This will help businesses achieve their objectives effectively and efficiently. The importance of business finance and its aspects can be further understood by pursuing business management courses or a diploma in banking and finance.