Often the hardest part of starting a business is raising the money to get going. The entrepreneur might have a great idea and clear idea of how to turn it into a successful business. However, if sufficient finance can’t be raised, it is unlikely that the business will get off the ground.
Importance of Finance
Finance is very important for business organisation . Finance includes planning of financial resources, making of optimum capital structure and effective utilization of financial resources by deep analysis of cost of capital and capital budgeting tool.
It is very advance technology. Like other technology, it can also increase the efficiency of business, so effective utilisation with reasonable care is very necessary in Finance. Without this Finance can become dangerous for company. Suppose , if company obtains large amount through his network resource but company has not made good financial planning regarding its effective utilisation , then Company can reach at the stage of Bankruptcy , because If Company has not good plan for investment , it will unable to provide good return to its creditor and shareholder , after this Creditors of Company can aback Company after demanding their fund . So, study of finance and its tool is very important.
Internal and External Source of Finance
Internal source of finance: comes from the trading of the business.
External source of finance: comes from individuals or organisations that do not trade directly with the business e.g. banks.
Internal source of finance tends to be the cheapest form of finance since a business does not need to pay interest on the money. However it may not be able to generate the sums of money the business is looking for, especially for larger uses of finance.
Examples of internal source of finance are: * Day to day cash from sales to customers. * Money loaned from trade suppliers through extended credit. * Reductions in the amount of stock held by the business.