Importance Of Finance In Business

Finance is not a foreign language, which can be understood only by those who have studied it for years. Everyone who works in today’s world has a basic understanding of the term finance. The day to day transactions of comparing prices, writing cheques to pay for purchases or sales, using credit cards for payments and purchase of goods and services and maintaining a bank account are all considered as financial activities. In the present world everyone has a bank account which will help them to save their money and use for different purposes in there day to day life. It is a field that deals with the allocation of assets and liabilities over a certain time under some terms and conditions of certainty and uncertainty. It can also be said as the

The advent of corporate form of business organization has increased the important of finance. The increase in the size of the business and the resultant increase in the scale of business operations have contributed to the importance of finance. Wide distribution of corporate ownership is one of the factors responsible. Capital intensive methods of production and the use of giant and costly machinery is also one of the factors responsible for the importance of finance in a modern industry.

Financing is an essential business activity, in the sense that business activities are not possible without finance. All business concerns, whether small or large, need finance. Small enterprises require less funds, and large business undertakings needs more funds. Financing may be short term finance, medium term finance or long term finance depending upon the nature of the activities to be financed.

A business undertaking requires finance for meeting different types of needs. It needs finance for starting a business and for its expansion, modernisation and diversification. Finance is also needed for meeting the day to day transactions. So depending upon nature of activities to be financed, the financial requirements or needs of a business enterprise may be

The numerous short terms and long term securities, covered by business finance, and have contributed to the development of money market and capital market in the country.

12. Finance is needed for the replacement and renewal of old and obsolete plant and machine.

13. By ensuring wise distribution of funds, finance contributes to balanced regional development in the country.

14. By contributing to the renovation and modernisation of industries, finance contributes to industrial development in backward areas.

15. Availability of adequate finance with an enterprise will not force the enterprise to resort to pressure tactics to collect the mounts due from customers. This would certainly improve the relationship between the enterprise and the customers, and would promote sales.

16. Finance is necessary for the acquisition of fixed assets like land, building, machinery etc. and also for meeting the working capital needs.

17. Availability of sufficient finance with a concern will help the concern to offer fair return on investment to stakeholders.

18. Availability of sufficient finance with concern at all times will enhance the credit worthiness of the concern in the eyes of suppliers, lenders and even the general