Meaning and Definition of Business Finance | Nature and Significance

Meaning and Definitions of Business Finance | Nature and Significance

Meaning and Definition of Business Finance

Business Finance is defined as the management of money and includes activities such as profiting, borrowing, lending, budgeting, forecasting and investing of money in a business. OR

Money required for carrying out business activities is called business finance.

Business finance is the money we need to establish and run our business, the more successfully we manage our money, the higher will be our odds for profitability. The term "business finance" includes the ways in which a company obtains and uses money, usually in reference to loans. Almost all business activities require some finance (money).

It is needed to establish a business, to run it, to modernize it, to expand or diversify it. It is required for buying a variety of assets for business, which may be tangible like machinery, furniture, factories, buildings, offices or intangible such as trademarks, patents, technical expertise etc. It is also essential to run day-to-day operations of business like buying materials, paying bills, salaries, collecting cash from customers etc., needed at every stage in the life of a business entity. Availability of adequate (sufficient) finance is very crucial for survival and growth of a business.

Nature and Significance of Business Finance

Business is related to production and distribution of goods and services for the fulfillment and requirements of society. Business Finance is involved in effectively carrying out various activities in business which requires finance. Hence, business finance is called the lifeblood of any business, a business would get stranded unless there are sufficient funds available for utilization. The capital invested by the entrepreneur to set up a business is not only sufficient to meet the financial requirements of a business.

Scope of Business Finance

Business finance studies, analyses and examines wide aspects related to the acquisition of funds for business and allocates those funds. Various areas covered by business finance.

1. Financial planning and Control

A business firm must manage and make their financial analysis and planning. To make these planning’s and management, the financial manager should have the knowledge about the financial situation of the firm. On this basis of information, they regulate the plans and managing strategies for a future financial situation of the firm within a different economic scenario. The financial budget serves as the basis of control over financial plans. The firms on the basis of budget find out the deviation between the plan and the performance and try to correct them.

2. Financial Statement Analysis

One of the scopes of business finance is to analyze the financial statements. It also analyses the financial situations and problems that arise in the promotion of the business firm. This statement consists of the financial aspect related to the promotion of new business, administrative difficulties in the way of expansion, necessary adjustments for the rehabilitation of the firm in difficulties.

3. Working capital Budget

The financial decision making that relates to current assets or short-term assets is known as working capital management. Short-term survival is a requirement for long-term success and this is the vital factor in a business. Therefore, the current assets should be efficiently managed so that the business won’t suffer any inadequate or unnecessary funds locked up in the future. This aspect implies that the individual current assets such as cash, receivables, and inventory should be very efficiently managed.