Business Finance Definition and Meaning

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Finance is the lifeline of every business as it helps in the overall conduct, growth, and expansion of a business. It is next to impossible to conduct a business without finance. Therefore, it is imperative and unavoidable to thoroughly understand the working of business finance. In the subsequent sections of this article, we’ll cover – what is business finance, what is financial management, and various other aspects of business finance.

Meaning of Business Finance

Business finance is the cornerstone of every organization. It refers to the corpus of funds and credit employed in a business. Business finance is required for purchasing assets, goods, raw materials and for performing all other economic activities. Precisely, it is required for running all the business operations.

To understand what business finance is, we must know that business finance includes activities concerning the acquisition and conservation of capital funds for meeting an organization’s financial needs and objectives. The importance of business finance is evident from the fact that business finance is required to undertake every business operation successfully.

The amount of capital that is pooled by a business owner into their company is often not enough to meet the financial needs of a company. Herein, the importance of business finance and its management rises even more. Consequently, business owners along with their teams look out for various other ways to generate funds.

A business may require additional funds for anything ranging from buying plant or apparatus, raw materials or further development. Different types of business finance are:

Fixed Capital

Working Capital

Diversification

Technology upgrading

Importance of Business Finance

Here are some reasons why business finance is important for all organizations:

Maximization of wealth

Business finance ensures that a shareholder’s wealth is maximized. It is also important to understand that wealth maximization is different from profit maximization. Wealth maximization is holistic and ensures the growth of an organization.

Ensure constant availability of money

For any business to survive, it should be in optimum financial condition. This includes the availability of funds at the time they are needed. Unless there are enough funds, the business may not be able to function properly.

Attaining optimum capital structure

This requires a perfect combination of shares and debentures. This way the organization will be able to maintain a perfect balance and not give away too much equity.

Effective utilization of funds

This is another reason for the high importance of business finance and its efficient utilization. A business should be able to cut down unnecessary costs and not invest funds in assets that are not required. An exhaustive course in financial management, diploma in banking and finance or any other course related to finance can give your career in financial management a head start. Or, if you are already in the field, it can give your career the necessary boost.

What is Financial Management in Businesses?

Now that you know all about what business finance is and its importance, it’ll be easier for you to understand financial management.

Financial management can be defined as the activities involving planning, raising, controlling, and administering money that is used in the business. Financial management involves procuring funds for buying fixed assets, raw materials, and working capital. Now that we know what financial management is, it is also important to understand that proper financial management helps businesses supply better products and services to customers besides offering other benefits.

Business Finance FAQs

State the difference between corporate structure business and partnership type business

A business that engages many workers and employees is known as a corporate structure business. There is no limit on the maximum number of employees that can be employed. These kinds of businesses require high capital. In contrast, only a maximum of 100 partners can be admitted into a partnership-type business. The capital requirement for this type of business is low. If you undertake business management courses, or pursue a business management degree, or a diploma in banking and finance, you’ll get to learn more about it.

Future Scope of Business Finance as a Career Option

The future scope of business finance as a career option is lucrative. With the passing time, as the competition is becoming even more fierce, the importance of efficient financial management is increasing only. This will help businesses achieve their objectives effectively and efficiently. The importance of business finance and its aspects can be further understood by pursuing business management courses or a diploma in banking and finance.

Emeritus India offers a wide range of courses in finance in collaboration with globally renowned universities.

Financial Planning - Definition, Objectives and Importance

Financial Planning - Definition, Objectives and Importance

Definition of Financial Planning

Financial Planning is the process of estimating the capital required and determining it’s competition. It is the process of framing financial policies in relation to procurement, investment and administration of funds of an enterprise.

Objectives of Financial Planning

Financial Planning has got many objectives to look forward to:

Determining capital requirements- This will depend upon factors like cost of current and fixed assets, promotional expenses and long- range planning. Capital requirements have to be looked with both aspects: short- term and long- term requirements. Determining capital structure- The capital structure is the composition of capital, the relative kind and proportion of capital required in the business. This includes decisions of debt- equity ratio- both short-term and long- term. Framing financial policies with regards to cash control, lending, borrowings, etc. A finance manager ensures that the scarce financial resources are maximally utilized in the best possible manner at least cost in order to get maximum returns on investment.

Importance of Financial Planning

Financial Planning is process of framing objectives, policies, procedures, programmes and budgets regarding the financial activities of a concern. This ensures effective and adequate financial and investment policies. The importance can be outlined as-

Adequate funds have to be ensured. Financial Planning helps in ensuring a reasonable balance between outflow and inflow of funds so that stability is maintained. Financial Planning ensures that the suppliers of funds are easily investing in companies which exercise financial planning. Financial Planning helps in making growth and expansion programmes which helps in long-run survival of the company. Financial Planning reduces uncertainties with regards to changing market trends which can be faced easily through enough funds. Financial Planning helps in reducing the uncertainties which can be a hindrance to growth of the company. This helps in ensuring stability an d profitability in concern.

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The Importance of Financial Planning for Small Businesses

A financial plan is the most important thing a small business needs. It’s a road map, a guideline, a reminder of what your goals are–what you are trying to achieve in the short-term and the long-term. It lays out what your possible costs are, and it seeks out to address avenues for how to manage these costs. It is so important that investors, bankers, and creditors won’t even set up a meeting with you if you don’t have a financial plan for your small business.

Your financial plan helps you manage your cash flow. Most businesses have income that varies from season to season. A good financial plan takes these vicissitudes into account so that there aren’t shortages in the long term. Having a cash cushion helps ensure that your business can take a poor season and still come out on top. Planning your taxes, prudishly spending your cash flow, and budgeting carefully can result from careful financial planning.

When someone is in the thick of running his/her business, he /she can lose sight of the long term goals that ensure proper growth of your small business. A solid financial plan can be a reminder of all the necessary expenditures to keep your small business growing so as to stay ahead of the competitors in your market.

The decisions of the small business owner takes can have positive or negative consequences. A good financial plan can spot positive and negative trends where they may have become lost in a sea of numbers. This will help you better allocate funds to the areas that are making your business money, and avoid expenditures that didn’t yield enough results.

Financial planning can also help you prioritize expenditures. In small businesses, conserving financial resources is a must. A well thought out financial plan can help you prioritize what areas need to be funded immediately, and where your expenses can wait until you have a better season. Even the world’s largest corporations go through a process of prioritization of expenditures resulting from careful cost/benefit analysis.

Overall, the financial plan is there to help you measure your progress. How did your season go? What steps have been made in achieving your goals? When a small business owner is knee-deep in the day-to-day operations of running their business, they can often lose sight of what strides they have made to grow their small business. The financial plan helps the small business owner see precisely what is occurring through reviewing and analyzing the hard data.

In short, every small business owner must have a methodical business plan that is updated regularly if they want to operate successfully for years to come.