Finance- An Integral Part Of The Business
The businesses are generally funded through three main sources such as investor’s finances like partner’s, owners or venture capital, loans from financial institutions and revenues from operations of the business. The business requires finance to meet day to day expenses and also to meet capital expenditure. Expenses will be either short-term like payroll payments or it can be long-term like purchasing buildings.
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Finance is an integral part of the business and listed below are the reasons why it is considered so.
Why finance is so important
Meeting the goals- It is not possible to achieve the business’s short-term and long-term goal without the efficient management of your finances. If you are not able to efficiently manage the finances, it can lead to a shortage of liquidity. You require funds for maintaining the customer base, market competition, business growth and to run your business operations.
Long-term activities– In order to achieve long-term goals, the business should have sources of finance that will support a longer period of time. If you are relying only on short-term funding, then the business will fall shortage of money to fund the long-term projects and all the long-term ventures will get repeatedly stalled. You need to resort to bank loans or take out the business savings. One cannot rely only on short-term sources to fund the expenses of huge magnitude.
Short-term activities- The business will come to a standstill when there is not enough working capital to meet all the essential requirements. At any time, the creditors will demand the payment form you for the items that have been purchased by you for the business. If you fail to meet their demands, then it will lead to damaged business relations or shortages of inventory. The short-term finance like advance receipts, cash revenue, etc should be sufficiently obtained through effective discount and debt policies. Preparation of cash flows will help in forecasting the outflow of money. In addition to this, it also helps in predicting the finance required to meet the cash outflows.
Every business comes with a vision and efficient management of finance helps in achieving them.