Businesses require funding for a variety of reasons. There are, however, a few common reasons why businesses require finance in order to keep functioning. To the outsider, a business might appear to be doing fine and we might wonder, why do businesses need finance? Well, there could be a number of reasons why a company needs finance despite the fact that it might appear to be doing well enough on the outside.
So why do companies need finance? And who takes care of the financial needs in a business plan whether it is a new business that is being set up or an existing business? Read on to find out more about business finance needs that various companies might have, irrespective of size and how they fulfil this need.
Working Capital: Having sufficient working capital is imperative to the health of any business and not having this could have a serious impact on the future of the business. A large number of businesses decide to apply for external funding in order to create sufficient working capital to enable them to fulfil daily functioning, allow for investment in new products or services that in turn allow for expansion. A loan can cover short term funding, bridge the gap between orders and supplier payments to help the company meet its funding obligations. In 2019, The British Bank conducted a survey that indicated that working capital is the most important reason for a business to seek funding.
Asset Purchase: In order for your business to grow it is necessary to purchase assets such as new machinery or vehicles. Despite the fact that you might have enough working capital to run the business, it might be a good idea to apply for a loan to cover the costs of purchasing new assets to help expand your business. An asset funding loan can help spread out the cost of purchasing a new and expensive product or service over a period of time and repaying it slowly in monthly instalments of anywhere between 6 months to 5 years. An asset purchase loan can be used to buy anything from business vehicles to IT equipment such as computers or new machinery to speed up production while spreading the cost out over a time period that allows you to make regular payments instead of having to come up with the money all on your own and all at once.
Starting a new business: A new business or startup will need a steady and sufficient cash flow in order to get them off the ground. Most business owners or directors use their own funds to start the business and in most cases, they rarely have enough to self-fund the company and keep it going on their own steam. They usually apply for external funding which may be in the form of a bank loan, borrowed money from friends or family, crowdfunding, equity investment and funding grants. This additional funding can be used to buy stock, market the business, or even hire staff. However, it is not easy to come by funding for a startup and traditional finance providers or investors will require a solid business plan before even considering putting money into the business.
Growth funding: In order to be a successful business owner one must understand the business finance needs and importance of funding the business at the right time in order to help it grow and take it to the next level. In such a case you will most likely need funding to enable you to execute your business plans. A loan for growth finance can enable you to expand your range of products or services, move into new premises, hire more staff, or even expand internationally. This can help you realise your business dreams. If your business has its daily running costs taken care of, then the additional funding can be used to help the business grow.
Debt restructuring: In case you need to restructure the debt of the business, a debt restructuring loan can help you do that. It will consolidate costs, make your finances more manageable and reduce borrowings. A loan could reduce the number of different monthly repayments you have to make and help your company grow by freeing up cash in your business for working capital and expansion.
Whatever the purpose may be, a business loan or external funding can definitely help both older businesses and startups by helping them stay afloat and meet the challenges that come with running a business. In case you have a new startup, don’t stress and try to figure it out on your own. Remember, there are a number of avenues open to you to help you establish yourself and set you on the path to success and CoffeeMug.ai helps you make the best financial decisions.
CoffeeMug.ai is an AI-powered networking platform that effortlessly connects individuals, investors, and corporate leaders in the industry landscape. In addition to assisting the members on board explore innovative business opportunities, this worldwide network provides 1:1 mentoring for entrepreneurs and assists them in generating funding for startup businesses.
FAQs
Q. What is the need for business finance?
A. Businesses need finance for various purposes, for example purchasing new assets, buying inventories, hiring more talents, or conducting research and development.
Q. What are the two categories of financial needs of the business?
A. Companies have two options to acquire financing: debt financing and equity financing.
Q. What should be in a business plan financial plan?
A. A financial plan comprises three components: a cash flow projection, an income statement, and a balance sheet.
Q. What is the most important part of a financial plan?
A. Budgeting is the most important component of financial planning. Setting a budget is an easy task, however, planning as per the budget and reconciling the expenses is a challenging task.
