BUSINESS FINANCE INTRODUCTION

Business concern needs finance to meet their requirements in the economic world. Any kind of business activity depends on the finance. Hence, it is called as lifeblood of business organization. Whether the business concerns are big or small, they need finance to fulfill their business activities. All the activities are concerned with the economic activities and very particular to earning profit through any firm or activities. The entire business activities are directly related with making profit. Hence finance may be called as capital, investment, fund etc., Increasing the profit is the main aim of any kind of economic activity.

DEFINITION OF BUSINESS FINANCE

According to the Guthumann and Dougall, Business finance can broadly be defined as the activity concerned with planning, raising, controlling, administering of the funds used in the business. In the words of Parhter and Wert, Business finance deals primarily with raising, administering and disbursing funds by privately owned business units operating in nonfinancial fields of industry.

Need of Corporate Finance Finance is the life blood of business. It is required by all types of companies. It is required to start and run a company. It is required for all the business activities, such as survival, stability, growth expansion and diversification of a business. Its also required for closing down the company. So, a company cannot survive without finance. It requires promotional finance to start the company. It requires long-term finance to purchase fixed assets. Importance of Business Finance: The following points bring out the importance of corporate finance. 1. Research and Development: Business Finance is needed for Research and Development. A company cannot survive without continuous research and development. The company has to go on making changes in its old products and It must invent new products. Otherwise, it will be automatically thrown out of the market. 2. Motivating Employees: Employees must be continuously motivated to improve their performance. They must be given financial and non-financial incentives, such as bonus, higher salaries, allowances, transport facilities, canteen facilities etc. for all this expenses company requires finance. 3. Promoting a Company: Finance is needed for promoting (starting) a company. It is needed for preparing Project Report, Memorandum of Association, Articles of Association, Prospectus, etc. It is also needed for purchasing Land and Buildings, Plant and Machinery and other fixed assets, to purchase raw materials, to pay wages, salaries and other expenses etc. It represents without finance no company can start and run. 4. Smooth Running of Business: Finance is needed for conducting the business smoothly. It is needed as working capital. It is needed for paying day-to-day expenses. It is needed for advertising, sales promotion, distribution, etc. A company cannot run smoothly without finance. 5. Expansion and Diversification: Expansion means to increase the size of the company and business. Diversification means to produce and sell new products with good service. Modern machines and modern techniques are needed for expansion and diversification. Finance is needed for purchasing modern machines and modem technology. So, finance is mandatory for expansion and diversification of a company.

6. Meeting Contingencies: The Company has to meet many contingencies. For e.g. Sudden fall in sales, loss due to natural calamity, loss due to court case, loss due to strikes, etc. To meet this all contingencies company needs finance. 7. Government Agencies: There are many government agencies such as Income Tax authorities, Sales Tax authorities, Registrar of Companies, Excise authorities, etc. The company has to pay taxes and duties to these agencies. For the payment of taxes and duties company needs finance. 8. Dividend and Interest: The Company has to pay dividends to the shareholders and interest to the debenture holders, banks, etc. It also has to repay the loans. So, company needs finance to pay dividends and interest. 9. Replacement of Assets: Plant and Machinery are the main assets of the company. They are used for producing goods and services. However, after some years, these assets become old and outdated. They have to be replaced by new assets. For the replacement of old Assets and to buy new assets Company needs finance. 10. Promote Business: Finance required in all the aspects for promoting a business. To increase goodwill of the company by advertising, personal selling and home delivery, it leads to promoting a sales and the business. TYPES OF FINANCE
Business enterprises need funds to meet their different types of requirements. All the financial needs of a business may be grouped into three categories: 1. Long term finance: It refers to funds required for more than 5-10 years. Such as investments in plant, machinery, land, buildings etc. These funds can be arranged from the long term sources as a permanent working capital of the company. 2. Medium term finance: The fund required for the period of 1-5 years but not exceeding 5 years. For example, publicity and advertisement of a company. These expenses called as deferred revenue expenses and required funds for these expenses can be called as medium term financial needs. 3. Short term finance: It refers to fund required for current year. Such as stock, debtors, cash etc. Investment in these assets is known as short term working capital, which is funds arise for a short period of time not exceeding the accounting period. i.e one year. Factors influencing on business finance: 1. Capital requirement 2. Business needs (purpose) 3. Capital structure of the business 4. Repayment of loans 5. Interest and fees structures 6. Financing requirements 7. Other requirements 8. Ability to repay 9. Historical Record of Repayment 10. Cash flow of the business