Business Finance
Money used for any activity is known as Finance. Every activity whether economic or non-economic, requires money to run it. Almost all business activities require some finance. Finance is needed to establish a business., to run it, to modernise it, to expand, or diversify it. Finance is an important functional area of business. It deals with the timely procurement of funds and their effective utilisation. 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 it is needed to running day-to-day operations or business like buying supplies, paying bills, salaries, collecting cash from customers etc, thus needed at every stage in the life of a business entity. Therefore availability of adequate finance is crucial for the survival and growth of a business.
Business Finance is basically the methodology of allocating financial resources, with a financial value, in an optimal manner to maximize the wealth of a business enterprise. In the case of a company, managerial or corporate finance is the task of providing the funds for the corporation’s activities. For small business, this is referred to as SME (Small and Medium Enterprise) finance. It generally involves balancing risk and profitability. Ownership equity and long-term credit, often in the form of bonds would provide long term funds.
Business and Finance are interrelated and they cannot function without each other’s co-operation. Financing a business from various ways of finance called Business Finance. Business Finance plays the most significant role in the global market competition. A business has to face the perfect competition and in order to face it the business depends upon various factors. One of the factors is a sound business plan or strategy and on the other hand, sound financial position of the business enterprise.
Business Finance refers to the various ways of financing a business. There are a number of answers to the question how to finance a business. There are three major decisions to be made in this allocation process: capital budgeting, financing, and dividend policy. Capital budgeting is the decision regarding the choice of which investments are to be made with the resources that have been brought into the business or earned and retained by the business. The choice depends on the returns to be made from the investment exceeding the cost of capital. Financing is the decision of which resources or funds are to be brought into the business from external investors and creditors in order to be invested in profitable projects and Dividend policy is the decision regarding funds to be distributed or returned to the equity investors. This can be done with common stock dividends, preferred stock dividends, or stock repurchase by the business of its own stock. These decisions lead to the company’s capital structure.