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Chapter: 11th Commerce : Chapter 19 : Sources of Business Finance

Nature and Significance of Business Finance

“The finance function is the process of acquiring and utilizing funds by a business.” “Finance is that business activity which is concerned with the acquisition and conservation of capital fund in meeting the financial needs and overall objectives of business enterprises.”

Nature of Business Finance

The following characteristics can be derived from the definitions.

i.               Business finance comprises of all types of funds namely short, medium and long term used in business.

ii.               All types of organisations namely small, medium and large enterprises require business finance.

iii.               The volume of business finance required varies from one business enterprise to another depending upon its nature and size. In other words, small and medium enterprises require relatively lower level of business finance than the large scale enterprises.

iv.               The amount of business finance required differs from one period to another. In other words the requirement of business finance is heavy during the peak season while it is at low level during the dull season.

v.               The amount of business finance determines the scale of operations of business enterprises.


Significance of Business Finance

Business enterprise can function effectively and efficiently only with adequate business finance. It cannot expand its business operations without business finance. The success of any  business firm depends, to   a larger extent, on the manner in which it mobilizes, uses and disburses its funds.

The following points highlight the significance of business finance.

i.               A firm with adequate business finance can easily start any business venture.

ii.               Business finance helps the business organisation to purchase raw materials from the supplier easily to produce goods.

iii.               The business firm can meet financial liabilities like prompt payment of salary and wages, expenses, etc., in time with the help of sound financial support.

iv.          The sound financial support enables  the enterprises to meet any unexpected or uncertain risks arising from business environment efficiently. For example economic slowdown, trade cycles, severe competition, shift in consumer preference, etc.

v.          Sound financial position empowers the enterprise to attract talented man power and introduce latest technology.


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11th Commerce : Chapter 19 : Sources of Business Finance : Nature and Significance of Business Finance |

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