Why is Finance so Important to a business?
Finance is a crucial part of a start-up business; it is the cornerstone to determine whether or not your business will jump over the first hurdle. Without sufficient finance, a business has a very low risk of surviving the first stage of development. Finance can be important for various activities throughout the business starting with the purchasing of stock. If you are providing a product you will most likely need raw materials, if not then you will need general stock. Having more expensive, higher quality stock will push you to a competitive advantage. (Chron, 2013, Electronic Source.) Finance allows you to buy in order to sell and hopefully make a profit on those goods. If you are providing a service then finance will allow you to buy tools or equipment to improve your service. Start- up businesses might not necessarily have anyone other than the entrepreneur working, however if you have employees then finance will help pay their wages. In U.K. you pay business tax on your business profits, the amount of tax you pay depends on how much profit you generate. Finance is important to be able to pay these and calculate how much you owe to the government. Not having the sufficient finance will reduce the chances of the business accepting negotiations, therefore restricting the business in terms of growth (Chron, 2013, Electronic Source). Business finance is spent on two types of expenditure, capital and revenue. Capital expenditure is when finance is spent on purchasing fixed assets. These are medium to long-term resources that will remain in the business for a long time. Revenue expenditure is payments for the day to day running of a business. Payment includes rent, electricity, raw materials or wages. (Tutor2u, 2012, Electronic Source). If we look at Pete’s business as an example we can clearly see how finance in so