Meaning, Nature and Significance of Business Finance

Introduction to Business Finance

Business Finance is the life blood of business. Business Finance is not only a requirement but also a sustaining need for the business. Business Finance being the most crucial factor of every business requires special attention on its procurement source, on its management, on its investment, in big business houses a team is forced in this conduct known as the Finance Committee.


In this section we will know about the meaning, nature and significance of business, also we will discuss the financial sources and its importance.  


Business Finance Meaning

The raising and management of funds by the business organizations is called business finance. Planning the financial need, analyzing the requirement, controlling the operations are the responsibilities of the financial manager, this person is closely related to the top-level management team. 


In large firms, major financial decisions are taken by this financial committee, they are responsible for the annual budget and so forth. 


While, in small companies, the owner-manager conducts the financial operations all by themselves. The business finance which requires day-to-day attention is conducted by the lower level staff. They work in the sections of handling the cash, receipts, disbursements, borrowings from the commercial banks and this is done on a regular and continuous basis and they also form cash budgets. 


Nature of Business Finance

The nature of the business finance is enumerated in the points mentioned below –

  1. Business Finance consists of different kinds of funds – short, medium and long term as and when required by the business.

  2. Any type of business needs this business finance, it is utmost for the organization.

  3. The volume required differs from business to business, small business requires less business finance in contrast to the large business firms. 

  4. In different times of the business season, requirements differ. In peak seasons business demands for huge business finance.

  5. The amount of business finance determines the scale of operations conducted by the company. 


Significance of Business Finance

To highlight the significance of business finance, we point the following as mentioned:

  1. A firm with a good amount of business finance will require less time and hassles to start the business venture.

  2. With the business finance in hand, the owners can buy the raw materials as needed for production. 

  3. The business firm can easily pay his dues and other payments with the help of business finance. 

  4. Uncertain risk and Contingencies can be tackled with business finance in hand.

  5. Good financial capacity of the business will attract talented workforce, also highly efficient technology can also be availed with strong financial background.  

  

Scope of Business Finance 

Business finance helps in studying, analyzing and allocating the business funds and other covers done by the business is done as mentioned:

  1. Analysis and Research of Financial Statement

  2. Financial Planning and Controlling

  3. Capital Structure Management

  4. Raising Capital

  5. Investing Capital

  6. Managing the finance risk. 


Need and Importance of Sources of Business Finance  

The main resources of Business Finance are revenues from business operations, investor’s own finances, venture capital, loans from financial institutions. Businesses need finances to meet their day-to-day finances which can be covered by these sources. 


The importance of the sources of business finance are:

  1. Meeting Goals.

  2. Short term activities

  3. Long term activities

  4. Achieving financial goals.

All such activities are governed and administered by the financial department in each organization. Businesses need this finance to sustain their growth. Companies pool money from the public in return of shares of the company, this also a type of procurement of business finance.


So, we see there are many such fundamentals in the procurement of the business fund thus the finance team should carefully execute their analyses.

FAQs (Frequently Asked Questions)

1. What is the Function of the Finance Committee?

Ans. The function of the finance committee is to specially analyze the need of business finance, how it should be acquired, where it should be invested, the aggregate risk involved and also the ascertainment of the return is conducted by the team. This team consists of experts who have wide experience in the money market, they well know how finance is to be channeled in the business.

2. How Do Large Companies Acquire Business Finance?

Ans. Large companies are generally run by the wealthy owners; hence, they have investors' owner's funds, they also acquire huge funds from the public who invest in the company, this is known as the share capital. The large business corporations usually attract high net worthy investors to invest in their business.

3. What is Venture Capital?

Ans. Venture capital is a special type of funding provided by the venture capitalists to the start-ups who have high growth potential. They are basically private equity types of funds that are being provided by investment banks and other financial institutions. 

4. What is the Post Popular Source of Funds?

Ans. The popular source of funds varies from business to business needs. Funds from the public pool, the owner's own fund is known to be the most popular. Also, loans from financial institutions, and banks are also regarded to be safe.