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Significance of Business Finance

An important requirement for the success of a modern business is the provision of sufficient amount of capital. No business undertaking can prosper unless it has got sufficient capital at its disposal to install up-to-date machines and equipment, buy raw materials, meet day-to-day expenses, pay wages and salaries, and so on. The importance of finance function has increased these days because of the adoption of capital intensive techniques, increase in the scale of operations and difficulties in raising finance.

Finance is the Life-blood of Business. There must be a continuous flow of funds in and out of business. Money makes the wheels of business run smoothly if it is managed efficiently.

Business enterprises require capital for three main purposes:

(i)    Financing fixed capital requirements, i.e., purchase of land and building plant and machinery, furniture, etc.

(ii)    Financing working capital requirements, i.e., purchase of raw material, payment of wages and salaries, payment of freight, etc.

(iii)    Financing growth and expression programmers.

(iv)    Financing modernization of business.

(v)    Meeting cost of procuring finance e.g., advertisement, brokerage, underwriting, commission, etc.

(vi)    Purchasing intangible assets e.g., goodwill, patents, copyright, etc.

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