The Importance of Finance
- When starting a new business entrepreneurs need finance to cover initial setup costs
- This may include acquiring equipment, renting or purchasing premises, conducting market research, hiring staff and developing a marketing strategy
- This may include acquiring equipment, renting or purchasing premises, conducting market research, hiring staff and developing a marketing strategy
- Businesses often require finance to fuel their expansion and growth plans
- This could involve opening new locations, entering new markets, launching new products or services, and increasing production capacity
Reasons why businesses need finance
Capital expenditure
- Businesses require finance for capital expenditure such as purchasing machinery, technology, vehicles, and infrastructure
- These investments enable businesses to enhance productivity, expand operations and improve efficiency
- These investments enable businesses to enhance productivity, expand operations and improve efficiency
Working capital
- Working Capital is necessary to manage the day-to-day operations of a business
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- It helps cover expenses such as purchasing inventory, paying suppliers, meeting payroll obligations and funding overhead costs like rent and utilities
- Sufficient working capital ensures that a business can operate smoothly without facing cash flow issues
Research & development
- Businesses require finance for research and development (R&D)
- Money is needed to invest in technical research and product development
- This investment helps them to stay ahead of the competition and create new revenue streams
Marketing
- Effective marketing and advertising requires finance to develop and execute marketing campaigns, create advertising materials, conduct market research and build brand awareness
- Investing in marketing helps attract customers, increase sales, and generate revenue
- Investing in marketing helps attract customers, increase sales, and generate revenue
Risk management
- Businesses need finance to manage risks and protect against unforeseen events
- This includes paying for insurance coverage, contingency funds and implementing risk management strategies
- This includes paying for insurance coverage, contingency funds and implementing risk management strategies
Debt servicing
- Many businesses need to service debts such as loans or credit facilities
- These debts, including interest, must be repaid over the agreed-upon period
- These debts, including interest, must be repaid over the agreed-upon period
Business performance
- Finance provides a metric to measure business performance
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- Business success is often judged by the level of profits it makes and the stability of a business can be determined by the level of working capital or liquid assets available