Business Finance 💸and its sources
Business Finance and its sources
It is well known that money[capital] is required to establish and run every business, trading and profession. Money[capital] is therefore called as life-saver of Business.
The money that is needed for any business action is called Capital/Finance. Therefore, the fund required to meet business objectives and the methods of obtaining it, is called as Business Finance.
Need and Importance:-
In every business, majorly the fulfillment of following objectives, finance/capital is required:
1. Purchase of Fixed Assets:-
In every type of business there are certain fixed assets such as Land and building, furniture, machines, etc. and in order to purchase them, large amount of money 💵 is required.
2. Payment of daily expenses:-
After the establishment of business, money is also required for payment of daily activities such as purchase of raw materials, taxes and rent payment, telephone bills, electricity bills and wages.
3. Growth of Business:-
The growth or development of business involves the expansion of the current business and the introduction of new types of business, which is not possible in absence of capital. New technology is the key to timely development of the business, so finance/money is essential for technology development.
4. Fulfilling time gap in production and sales:-
The expenditure on production is realised through in sales and generally there is a time gap in production and sales. There is a constant expenditure in this time interval also. All these required finance.
5. Benefits of Business Opportunities:-
Money 💲 is also required to avail the business opportunities such as innovation, revival of investment, adjustment, etc.
Sources of Short-term finance:-
A business unit raises capital from various sources. Each source has its own specifications, which must be correctly understood in order to identify and select the best sources of fund raising. Various sources of finance are as follows:
1. Business credit:-
The credit given to a businessman by the other businessman for the purchase of goods and services is called Business Finance. Generally, the businessman purchases goods on credit for one and half month and then it is paid.
2. Bank credit:-
Bank credit is a way of providing short term finance to business firms by commercial banks. According to the fixed agreement, the amount fixed by the bank is deposited in client's account which the trader uses according to his requirement.
The types of bank 🏦 credentials are as follows:
I. Loans and Advances:
A certain amount is provided on the security of firm's assets on a fixed term basis.
II. Cash Credit:
It is a system under which the bank allows the borrower to withdraw the money to a certain extent, which is called as Cash credit. This facility is given on the stock of the goods, promissory notes or on other saleable securities and the security of government bonds.
III. Discounting of bills:
Before the maturity date of term deposits, loan bills given on the security of said bill are called discounting of bills. The bank cuts the deduction of such bills(intrest) and deposits the balance in customer's account and on the maturity date the customer pays the full amount of said bill.
3. Factoring:
Under this, the businessman transfers the liability to the bank to collect the unpaid amount received from the debtors by paying a certain fees. Here, the businessman recieves money in advance from the bank without waiting for the payment date. This is also a method of short term finance.
Conclusion:
There is a need for adequate funds/capital to start and operate any business. There are various sources (internal and external) of business finance such as Bank overdraft, Bills of exchange, Cash credit, etc. Choosing one or more options from the above finance options depends on the size, purpose and scope of the business.
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Nice content
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