The strength and solidity of a business depend on the availability of finance and the competence with which it is used. The abundance of funds can work wonders and its scarcity can ruin even a well-established business. Finance increases a company’s strength and profitability. It increases a company’s resilience to losses and economic depression. It is just like a lubricant, the more it is applied to the company, the faster the company will develop. The following sections explain the importance of financing for the company:
(1) Business Initiation: Finance is the first and most urgent requirement of any business. It is the starting point for any business, industrial project, etc. Regardless of whether you are setting up a sole proprietorship, a partnership, a business or a charity, you need sufficient financial resources. It is equally important for for-profit and non-profit activities. It is equally important for a multinational company and for an independent pharmacy.
(2) Purchase of assets: Financing is necessary to buy all kinds of assets. Even if there is a credit balance, a down payment must be made. For the purchase of fixed assets, financing is usually required at the beginning of the business activity. These assets consume a large part of the entrepreneur’s initial investment, so he may face liquidity problems in the day-to-day running of the business.
(3) Initial losses: No enterprise makes a high profit on the first day of incorporation. Some losses are normal before the firm reaches full capacity and generates sufficient turnover to cover costs. Financing is necessary to maintain these initial losses and allow the business to move forward gradually.
(4) Professional services: Certain companies require services from professionals. These employees have rich experience in specialized areas and can provide useful guidance to make the business profitable. However, these services are costly. Financing is always necessary for the services of such professional consultants to be available.
(5) Development: Business is always subject to change. New innovations and the emergence of new technologies replace old technologies that are not on the market. In order to stay on the market, it is therefore necessary to keep the company well equipped with all new tools and techniques. This required financing. New technologies are always expensive because they are better than others. Financing is therefore needed to buy new equipment and keep the business running.
(6) Information technology: Information technology has now changed the geography of the business. The domestic markets have practically expanded to other players in the world. The whole world can be your customer or competitor. In order to face such tough competition, IT is necessary. IT skills and competencies can work wonders. But here, too, financing is the decisive factor. It is very important to integrate expensive IT products into the company.
(7) Media war: Today, advertising and promotion have become an important element for business success. The way a businessman appeals to a customer and convinces him to buy his product has become more important than the quality of the product. With advertising on international media, a businessman can reach the minds of millions of people around the world. However, advertising is a luxury that any company cannot afford. Large sums are required to cover advertising expenses.
(8) Resource management: Finances are very important for efficient resource management. Resources include capital and personnel. The maintenance of machinery and equipment and the training of employees require all financial resources. Building new industrial units, expanding plant capacity, hiring well-trained skilled workers – all of them.
These factors can generate enormous income, but first and foremost they need financing.
(9) Equity investments: These are investments made in order to maintain a sufficient stock of commodities. The bulk purchase of raw materials is profitable in the sense that the purchase discount can be achieved and there is no danger of production losses. Companies usually have a large amount of stocks and raw materials at their disposal.