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Money required for carrying out business activities is called business finance. Almost all business activities require some finance.
- Finance is needed to establish a business, to run it, to modernize it, to expand, or diversify it.
- It is required for buying a whole variety of assets, they may be tangible like machinery, factories, buildings, offices; or intangible such as trademarks, patents technical expertise etc.
- Also finance is central to running day-to-day operations of business like buying supplies, paying bills, salaries, collecting cash from customers, etc. thus, needed at every stage in the life of a business entity.
- Availability of adequate finance is, thus, very crucial for the survival and growth of a business.
- A business organization cannot run efficiently if it does not have adequate finance to meet its requirements.
A business organization requires finance for two purposes:
- For acquiring fixed assets,- Funds for acquiring fixes assets are called "long-term funds".
These long term funds must be raised from such sources which will provide in an uninterrupted way the use of funds for a long period, e.g., shares, debentures, loans from financial institutions, etc.
- Funds for meeting the day-to-day requirements are called "short-term funds". These funds are to be raised from such sources which can provide funds only for a short period, quickly and at reasonable cost, e.g., banks, public deposits, etc.
Resources: physical resources of the business are called as assets and are acquired to help in developing business activities and reaching goals.
- They are used to generate sales and hence profits.
- Some assets are converted into sales, profits and cash relatively and quickly, they are called as current assets
Some are used to support business activities and not for sale, they are called as fixed assets eg. Land, plant and machinery.
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