Business finance is a broad term for things about the management, development, and organization of financial resources and investments. This includes all the financial decisions made by a business in the process of bringing it into operation, such as deciding what products to sell, where to get their raw materials, how to build their infrastructure, what supplies to buy from whom, etc. Business finance includes the whole range of activities required for managing the risks associated with running a business. In other words, business finance includes both financial and non-financial aspects of a business. The term ‘business finance’ is usually used together with the term accounting because accounting is also a part of business finance. But business finance is also commonly used separately from accounting, sometimes even having its own terminology.
One of the main concepts of business finance is that of the capital structure, which deals mainly with the provision of short-term loans to carry on business operations. A typical capital structure might comprise of fixed assets, accounts receivable, inventory, short-term loans, long-term debts (such as long-term contracts), retained earnings, and non-financial assets, such as trade in raw materials, plant and equipment, and intangibles. The amount of debt capital that a business requires is determined by its financial needs at the time of planning. A business finance management system is then required to determine the appropriate mix of debt and equity in order to maximize the return on equity. This system considers various factors such as the operating costs (which must be included in the financial plans), market conditions, competition, and potential growth factors.
Another aspect of business finance is asset management, which involves the provision of equipment and materials, whether through purchasing, leasing, or sales of options. Obtaining finance for these purposes requires proper planning and the determination of optimal sources of capital. Usually, the largest and most stable financial institutions are the ones that are considered to be best suited for obtaining capital for business purposes. These financial institutions are also able to provide access to long-term financing arrangements that can prove useful in long-term projects.