What is the importance of studying business finance? You can think of it as looking backward in the rearview mirror to see where you were and how you performed. As you drive, finance is looking forward and adapting to your surroundings. There is a complementary relationship between them, but there is a difference between them. In football, offensive linemen and defensive linemen play opposite each other.
The goals and objectives are similar on the surface, but they are different in reality. On a more serious note, business finance is the management of your company’s finances. Additionally, finance plays a crucial role in ensuring adequate funds are available to run the business and making sure you’re investing and spending wisely.
Business finance is important because it allows businesses to operate smoothly without running out of cash and secure funds for long-term investments.
Accounting plays an important role in finance, but it is mainly descriptive, while finance uses accounting or export finance information to manifest tangible results.
Why Is Business Finance Important?
Cash flow is essential to any business, and business finance helps you make intelligent and prudent decisions regarding your cash flow and long-term funding plans. Utilizing existing funds and securing additional capital when necessary will help you increase profitability and leverage new opportunities for your business.
- Entrepreneurs can easily obtain land, capital assets, and other assets with the help of business finance, so they can focus solely on launching their business.
- The latest technology and software can be easily upgraded with access to finance, land, and machinery, ensuring you maintain the industry’s highest quality standards.
- It is possible to deal with contingencies more effectively without disrupting the company’s operations with financial resources.
Given out here are some common types of business financing. The following types can be evaluated and assessed based on your business’s needs:
1. Equity Finance
By investing in this type of finance, investors become owners of the company to the extent of their investment. An equity investment is a money brought into the business by shareholders or owners. The investor typically contributes substantial money in exchange for business shares. Shareholders receive benefits based on the number of shares they own once the business generates profits.
2. Debt Finance
As its name suggests, debt finance involves borrowing money. Loans are borrowed from a lender and repaid over time with a predetermined interest rate. Various sources of funding can be categorized into two groups:
- Through Debt:
Lending institutions can provide loans to entrepreneurs to help them meet their unique business needs. Loan providers offer quick approval on loans of up to Rs. 50 lakh so interested individuals can enjoy full benefits. However, business loans are generally only offered to businesses operating for at least two years and have achieved a certain turnover and profits. In addition to eligibility criteria, other criteria may apply based on the lender’s policy and the type of loan.
- Through Equity:
Entrepreneurs can pitch to investors to request their business idea/project funding. The investors can also appoint a management team to oversee the use of funds and the operation of the business. Startups and small businesses looking to expand are especially well-suited for this type of funding.
- Internal Funding
The enterprise’s owners generate preference shares, equity shares, and other forms of internal funds. As a result, owners retain ownership over the company through shares and drive major decisions about it. They are also able to avoid taking on debt as a result. The owner/promoter of a business must, however, have adequate funds to avoid contacting investors or lenders.
