Introduction to business finance.
No business activity can take place without some finance- or the means of purchasing the materials and
assets needed before the production of a good or provision of a service can take place. Finance
decisions are some of the most important that managers have to take. The range and choice of finance
sources are extensive and skilled managers will be able to match accurately the need of their business
for particular types of finance with the sources available.
Why business activity requires finance.
Finance is required for many business activities, like for example:
Setting up a business
For the day to day finance- for bills and expenses
Finance is needed to buy out the owners of the other firm
Special cases- more finance is needed in the recession mode.
Research and development into new products or to invest in new marketing strategies- Global
Start-up Capital- Capital needed by an entrepreneur to set up a business
Working capital- The capital needed to pay for raw materials, day-to-day running costs and credit
offered to customers. In accounting terms working capital= current assets-current liabilities.
Capital and revenue expenditure.
Capital Expenditure- Involves the purchase of assets that are expected to last for more than one year,
such as building and machinery
Capital Revenue- is spending on all costs and assets other than fixed assets and includes wages and
salaries and materials bought for stock. Working capital - meaning and significance.
Working capital is often described as the “lif