In the current world where competition is key and one has to be innovative,businesses can make use of the business finance concepts to make them have an advantage over their competitors.
CONCEPTS OF BUSINESS FINANCE
Cash flow is the amount of money coming into a business versus the money leaving the business. A good business is one that has a higher amount of money coming in as opposed to that which is going out.
This business concept explains that money is of greater value today than it will be in the future. A good example of this concept is waiting for the due dates of your bills to improve cash flow. Furthermore, one should create a good collection policy to improve the money coming into the business and avoid expenses.
RISK VS REWARD
The risk vs reward concept shows that there is a greater reward for those businesses that are willing to take a financial risk. An example is when a business owner decided to expand,the business has to take the risk of using its resources so as to realize profits in future.
EQUITY VS DEBT FINANCING
In order to get more finances in the business one has to decide whether debt or equity financing is appropriate. In equity financing,investors provide the necessary capital for a percentage stake in the business. On the other hand,debt financing is where one borrows money and pays later at an interest.
Opportunity cost is the value of something that must be given up in order to achieve something else. A good example is where a business uses its costs of operations at one store to open another one elsewhere.
FUNCTIONS OF BUSINESS FINANCE
Forecasting is the prediction of future trends using historical data. Forecasting determines aspects such as future business sales volumes and expected expenses. Financial risks may also be assessed by forecasting.
Financial planning is the process that helps business make sound business decisions. This entails how the business will generate money,budget,spend and reserve the money in case of an emergency.
All businesses have goals. Business finances enables a business define their objectives so as to employ various strategies which will help them achieve their goals. Without goals and strategies businesses will not know how to attain profitability.
A business that applies the above concepts has the advantages of hitting their target market,satisfying their customers and achieving their goals.