Top 10 Need and Importance of Business Finance

In the modern age, for every entrepreneurial or business activity, finance (capital and funds) are required, as without it the entrepreneur cannot function finance is the lifeblood of all economic activities.

need and importance of business finance
need and importance of business finance

In Business, Finance broadly means capital. Hence, Finance means obtaining capital or loans, so that the objectives of business entrepreneurship may be achieved.

In other words, Business finance means raising capital for business units and their rational use.

The importance of Finance may be compared with blood circulation in the human body.

Explaining the importance of Finance, Finance is important for industries and businesses, as lubricant oil is for the wheels, fresh for the bones and blood for the veins.

Need and Importance of Business Finance

Question is, What is the main purpose of business finance? or Why is finance so important?

The need and importance of business finance may be explained as follows:

1. Establishment of Business Enterprises

Finance is required for the promotion of the establishment of any type of enterprise.

Finance is required for registration of the company, for incorporation, for obtaining the certificate for starting the business and also for obtaining permission letter.

Besides, expenditure on these requirements, finance is required for arranging the working place, machinery, and equipment, working material, furnishing and salaries of the employees.

Thus, finance is required to complete the initial activities of the business enterprise.

Related: 18 Major Factors Affecting Capital Structure (Complete List).

2. Efficient Operation of Business

Finance is the source of business, which cannot be efficiently operated without finance, the reason being that with the help of Finance, purchase of commodities and raw materials, sending of products to the consumers, conversion of raw materials into finished product and sale thereof become possible.

3. Development and Extension of Business

Finances are also required for the development and extension of all business activities of the modern age.

With finances, various commodities may be purchased or sold or produced.

Besides, finance (capital) is also required for the purchasing of techniques, machinery, and equipment, the establishment of Laboratories, etc.

4. Sound Business Position

Finance is the only base point by which sound or weak position of business is known, reason being that payments may be made easier to the suppliers, remuneration and facilities may be provided to the Employees and payment of original amount and interest may be paid to the debtors in time, only when sufficient funds are available.

Not only that, but other responsibilities may also be performed easily.

Related: Top 10 Functions for Establishing A New Business Unit (Step by Step).

5. Facing Competition

Advertisement and publicity production and distribution of new commodities and services, incentives to the consumers, sale promotion, providing services and commodities at a fair price are required, to face present-day competitors.

For all these activities, finances are required.

6. For Infrastructural Facilities

Finance is also required for arranging those infrastructural facilities which are essential for business entrepreneurship, although the volume of required finances may be high or low, according to the coverage of various Enterprises.

Substantial capital is required for all infrastructural facilities, place, land, office site, plant installation for the establishment of industries, place for conversion of raw materials into finished products, water, electricity, telephone, etc.

7. Modernization of Business

Finances are required for new techniques, new sources, new machinery, various new products, and computerization, which are essential for the modernization and operation of the business.

need and importance of business finance
need and importance of business finance

Not only that, finance is required for Business location, furnishings of its office, etc.

Related: 15 Essential Features of Venture Capital (in Simple Words).

8. For Marketing Expenses

In the modern age, marketing is an important function of business, the reason being the area of marketing has become quite wide and that has necessitated various activities, like – advertising and publicity, sales promotion, marketing mix, selection of marketing intermediaries, distribution of goods, transportation, warehousing and marketing research, etc.

For all these activities, finances important needful role for every business.

9. Labour Welfare and Social Security

For the success of any business or enterprise, human relations between employers and workers should be cordial.

For that, the entrepreneurs should essentially safeguard the interests of the employees and workers.

For that, they are to be provided with various facilities, like – that of housing, primary treatment, health, education, libraries, and reading rooms, travel, etc.

In addition, they are also to be provided provident fund, gratuity, pension, old age, personal or group insurance and accidental insurance, etc.

All these need a substantial volume of finance.

Otherwise, it may not be possible to provide all these facilities.

10. Other Needs and Importance

Business Finance is required for research and development, international trade and the success of various schemes for Industrial and business development.

Thus, now you know the need and importance of business finance.

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