NATURE AND OBJECTIVES NATURE AND OBJECTIVES OF BUSINESS FINANCEOF BUSINESS FINANCE

ASST PROF. JONLEN DESA

FINANCEFINANCE

Finance is the basic requirement of any business. It is considered as the lifeblood of businesses.

It is the amount of money, funds or capital required for the smooth functioning of any business.

It is required for every and any business enterprise. It is required at every stage, from promotion to liquidation. Adequate finance is required for orderly functioning of a

business. Promoters need to calculate financial needs through a financial

plan.

FINANCEFINANCE

Proper financial management is very important. Sources & application of funds.

Thus, finance affects the profitability, growth and survival of a business.

No finance, no business.

Purpose of finance

BUSINESS FINANCEBUSINESS FINANCE

Business Finance is the finance required for conducting business activities.

Modern businesses require huge amount of fixed and working capital for conducting business.

Business finance is a process of raising, providing and managing of all the money that is to be used in connection with business activities.

Financial management is an important functional area of management.

All other areas or functions depend on finance.

DEFINITION “Business Finance can be broadly defined as the

activity concerned with planning, raising, controlling and administering of funds used in the business. ”

Guthmann and Douglas

FEATURES

Deals with financial aspect Concerned with estimation, collection and

utilization of funds Needs proper planning & control Objective oriented activity Major aspect of business management Dynamic in nature Business needs different types of finance. Collected from different sources

CORPORATE FINANCE

Finance when applied to a corporation or a joint stock company is termed as corporate finance.

Sole proprietor, partnership, HUF- Business Finance Joint Stock company- Corporate Finance

Companies raise huge amount of funds through public subscription.

Corporate finance was used extensively in the past and it is a narrow term.

BUSINESS FINANCE VS. CORPORATE FINANCE

Finance required by small businesses.

Broad concept

Wider term

Used in the present

Finance required by companies or corporations.

Narrow concept

Narrow term

Used in the older days, no more used now

BUSINESS FINANCE CORPORATE FINANCE

ROLE OF BUSINESS FINANCE IN AN ORGANIZATION

Business Finance plays an important role in every firm. It affects the survival, profitability and growth of the firm. It is necessary for the promotion of an organization. It ensures orderly functioning of an organization. Finance is the backbone of every business. It brings stability to enterprises. Expansion, modernization and diversification is possible only

when there are adequate funds available. It supports other functional areas of a business. It helps in meeting the objective of wealth maximization. Business Finance helps firms solve business problems. Thus, Business Finance plays an important role in every

business organization.

PRINCIPLES OF BUSINESS PRINCIPLES OF BUSINESS FINANCEFINANCE

FINANCIAL PLANNINGFINANCIAL PLANNING

Financial Planning is deciding in advance the financial needs of the company in order to function in a smooth manner.

The outcome of financial planning is the financial plan. Financial plan acts as a blue print of the capital structure of the

company. Through financial planning, the firm can estimate the total

requirements of a company. The purpose of financial planning is to estimate the financial

needs of a business unit. Financial Planning is a process of determining the financial

requirements and arranging for the collection and utilization of the same.

FINANCIAL PLANNINGFINANCIAL PLANNING

What is the capital requirement of both fixed & working capital?

What are the different sources available for raising funds & the quantity?

How to utilize the collected funds?

3 QUESTIONS 3 MAJOR ACTIVITIES

STEPS IN FINANCIAL PLANNINGSTEPS IN FINANCIAL PLANNING

SIGNIFICANCE OF FINANCIAL PLANNINGSIGNIFICANCE OF FINANCIAL PLANNING

Sound financial planning ensures orderly functioning, stability and

prosperity to a business unit.

Financial planning is important as it is the starting point of promoting

a company.

The capital requirement of proposed company is estimated, capital is

collected from different sources and finally used as per the financial

plan prepared.

The decision to promote a company will be given practical shape

through financial planning.

Financial planning is significant as it has vital bearing on the success

of a business unit.

FINANCIAL PLAN/ CAPITAL PLANFINANCIAL PLAN/ CAPITAL PLAN Company promoters prepare financial plan/capital plan during the

promotional stage of company formation. The overall objective of financial plan is to estimate the financial

needs of the proposed company as accurately as possible. A financial/capital plan gives a blueprint of the financial structure of

a company. It is a statement which tells, how much capital will be required, how

it will be collected and utilized. Financial plan lays down the foundation for the capital structure of

a company. It indicates the total amount of capital required to be raised, the

securities to be issued and the proportion from each security. Financial plan should be prepared carefully, errors could cost the

company a lot and hence experts should be involved.

OBJECTIVES OF FINANCIAL PLANOBJECTIVES OF FINANCIAL PLAN

To estimate the financial needs of the enterprise as accurately as

possible.

To ensure adequate supply of capital to the enterprise so that smooth

and orderly working is ensured.

To minimize the cost of raising funds by procuring funds under the

most favorable circumstances.

To provide flexibility to the financial structure of the enterprise for

suitable adjustments as per the need.

To keep the financial plan simple and also consistent with the overall

business objective.

ESSENTIAL FEATURES OF GOOD FINANCIAL PLAN

TYPES OF FINANCIAL PLANSTYPES OF FINANCIAL PLANS