Finance

What is business finance

What is business finance

Many people are familiar with the term business and the term finance but what is business finance? Very few people understand this aspect of economics which do give corporations, individuals, entrepreneur problem. Business finance is the aspect of economic that covers wide range of disciplines and activities that surrounds money management and other assets that are valuable.in economics as a study in schools and universities, business finance familiarises students to investing strategies and how to manage debt effectively without affecting the assets of the individual or corporation.

It also gets students familiar with the accounting methodologies.  Big business owners find it more difficult to the keep their companies profitable than the small scale business owners that have the understanding of finance principle.

READ: What is corporate finance

Functions of Business finance can take any turn i.e. businesses can be financed in a many ways according to how convenient it is to the individual or the corporation. Each of these ways has various advantages and disadvantages but business owners can go for the one with higher advantages and lower disadvantages to keep their business running and also in starting in new business. The two common ways of business finance are the debt and equity.

What is business finance

The debt finance must always be refunded back to the lender and it is a liability on the part of the business or the organisations. Equity on the hand gives everyone involve in the business equal right to participate and make decision for the corporation as they have money or investment in the business and how it is being run.

READ: What does financing mean

The debt finance 

The debt finance in what is business finance is one of the two major ways of sourcing funds for the starting of business and running of business. The business owner source for funds outside the internal organization to source for funds. He can get loan from banks or any private organizations and even individuals like friends, family, and neighbours. The money borrowed is usually paid back with either interest of finance charge as the case may be while some lenders do not take interest or finance charge. To receive loan depends on the type of individual or organization the loan is coming as this will determine the interest rate.

Equity finance

READ: How to finance a car

In what is business finance, another common way of sourcing or financing business is the equity financing. The business owner decides to sell out some stocks or shares of the company mostly in percentage to some investors. As result, the investors would have a say in the business and grab his own charge or the profit when the company start adding value.  The investors run the business hand in hand with the business owner and also have directives in the business. The investors lose if the company refuse to increase in value. The success of the company does not longer depend on the business alone again but on all the investors. The money got from the shares sold to the investors is being used in the running of the business and corporation.

What does finance mean

But every business owner must be warned that each way of importance of business finance must be handled with caution and must be vigilante in dealing with them. In debt finance, the company can liquidate and very prone to being bankrupted if the liability is more than the asset. The financial management and financial accounting must be put in place to know how money is being spent in the Company and how money is being received for every transaction that occur within the company. Paying the debt back must be timely and timing. Remove the debt immediately the profit is out to avoid finance charge as a result of extension of debt payment.

READ: What is public finance

In the equity finance, what is business finance can be very easy to run and very difficult to manage as there are more than one owner of the business at that time. Financial accounting which reports the activities of the company transaction must always be in place so also is the financial management.

Some things to consider in importance of business finance

  • Consider the capital at hand and if the capital is not enough, get other means of sourcing for fund. You can take up any of the two type of business finance strategy stated before
  • Financial management and financial accounting should be very transparent
  • Payment of tax and others fees and bills.
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Harish Yadav

Finance and market analyst and chief writer on howtofinance. Passionate to read books and articles on marketing and accounting. Also edits other articles and publish them here.

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