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Meaning of Business Finance

Last updated date: 17th May 2024
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Introduction to Business Finance

Finance is often known as the life blood of the business. Business Finance helps the overall conduct of the business. Capital is also a form of business finance. Business Finance helps the business to grow. To expand a business also, finance is used. Business finance is also used all over the channel for the operation of funding.

Without business finance it is not possible to conduct business, hence studying about the business finance is utmost required by the students studying business. In this context itself, we will discuss the learning of Business Finance and its aspect in the structure of business.

Meaning of Business

A business is an enterprising entity that is engaged in commercial, industrial, or professional activities. Businesses can be both for profit and also it can be non-profit organizations. Non-profit organizations are for the social cause generally. 

The term "business" refers to the collaborative efforts and activities of each individual in an organization to produce and sell goods and services for profit. Businesses are of many kinds – from sole proprietorship business to an international corporation. A business normally starts with a concept and an identity. Before starting a business, extensive researching is needed to turn the business idea into a real business. 

Business Plan is an important document while starting a new business. This plan will not only facilitate planning of the future, but also will facilitate in collecting of capital by showing the strength of the business.  

Business Structures

Businesses organize themselves in various structures. Some organizations work with a single person, while others work in numerous others. The most common structures include the sole proprietorship, partnership, corporations Limited Liability Companies, while sole proprietorship being the most popular among all.

A sole proprietorship, as indicated by the name is operated by the single person. There is no legal separation of the business and the owner.  

Partnership engages two or more partners in its business unit. They indulge their money and share the profit in their profit-sharing ratio as determined.

A corporation consists of a group of people who acts together as a single unit. Here the fund of the corporate structure is called ‘common stock’, which is owned by the shareholders. Tax system

Business Sizes

Business sizes range from small companies, such as restaurants, to multinational corporates such as any clothing brand. Larger businesses need large amounts of capital and hence if they want to operate their business, they need to take capital by pooling the funds of the public, where strict regulators are also engaged. While in small business no regulators are engaged as they operate in less funds without any pooling of funds from the public.

Business Industries

A company functioning under a specific industry may take its name while naming the sector of its operations. Like a company is said to be engaged in textile business if its functioning comes under a textile industry. 

Definition of Finance

Finance is the management, creation, and study of money and investments. We divide finance into three categories - Public Finance, Corporate Finance and Personal Finance. 

  1. Public Finance

The government allocates resources, distributes income, and stabilizes the economy. Government does regular funding for these programs, this is done mainly by taxation. Public finances also include charges form the ports, airport services, fines imposed on law breakers, sales from governmental bonds and securities.

  1. Corporate Finance

Businesses need to obtain finance, these procuring of finance can be done from various resources. A firm might take a long term loan from the bank, or it may raise public loan, or may issue shares to the general public. Managing this debt properly will help the expansion of the company profitably. 

Start Ups may get investment from angel investors or venture capitalists. They get this corporate financing with this method.

  1. Personal Finance

Personal finance is about the individual expenses, savings and investment. Personal Finance is also required to do methodically. Predicting the short-term, long-term needs are to be analysed properly. Personal finance is affected by one’s earnings, lifestyle, desires and personal goals. Purchasing of financial products like credit cards, life insurance, home insurance, car insurance. Also, personal banking is too considered as personal finance.

FAQs on Meaning of Business Finance

1. What is the difference between corporate structure business and partnership type business?

Corporate structure business engages a lot of workers and employees. It can include members without any maximum limit. Capital requirement is high in this type of structure. While, in partnership type business, maximum of 100 partners can be admitted in the partnership. Capital requirement is low as compared to corporate requirement.

2. How taxes are levied on the corporates?

Corporates face heavy taxation, and so it is one of the draw-back of corporate structure. In this case, LLP is the new addition, where partnership structure is formed while working in corporate style. LLPs are saved from paying a huge amount of tax.

3. Who is an Angel Investor?

Angel investors support the start ups financially, when other investors are not willing to invest money in these firms. They generally give this support in return of ownership stake or in exchange of convertible debts or equity. The investors back the start ups in their initial stages.

4. Who is a Venture Capitalist?

Venture Capitalists are the private investors who invest in high potential companies with promising equity stakes. They fund in start-ups or small companies who have difficulty in entering the equities market.