The businesses need finance to survive just like we need food. A business will fail if there’s no cash because it needs finance for a number of reasons. What is the importance of funds in a business?
The finance is needed for expansion. Every business needs to grow. Growth is a very important goal for a business and it needs finance to grow in size. You can merge your business with another business but the most successful type of growth is expanding in size and for that you need finance.
Your business can grow in many ways, you can merge with another company, take over another company so on and so forth. But expansion can be only done if the business expands internally. The business that aims to expand internally needs to get finance for that. The business managers try to find different ways to get finance for the business. They try to issue shares which is probably the best way to promote the growth. The shares can be floated in the public for a public limited company. The shares can be bought by the general public and finance can be raised.
In businesses where the shares can’t be raised or issued, the managers ask the owners to invest. They ask the owners to make some investment in the business, sometimes, the managers also keep the profits. The managers inject the profit, they give lesser profits to the shareholders or the owners to promote the expansion internally.
The finance is also needed to meet the long-term liabilities of a business. A business needs a lot of finance to pay for loans or mortgages. You cannot pay back the loans in a day or two. It’s a long process. Companies usually take loans to raise finance, the bank managers consider a few things before giving the loan to the company. The companies need finance to pay back the loans because if not paid in time, the bank can ask you to pay it by selling your business properties.