Why businesses need finance

The purpose of the finance function is to monitor and control the finances of the business so that the business can operate. There are many different reasons why businesses need finance. For example:

  • Business start-up – before it begins to operate, a business usually needs finance to secure premises, purchase equipment, begin marketing and recruit employees. These costs are incurred before the business receives any revenue.
  • Running costs – once it has been set up, a business must be able to pay for the things it needs to keep operating. These include raw materials and labour costs.
  • Recruitment – recruiting staff always costs a business money. Costs may include advertising the role, conducting interviews and paying for the use of an assessment centre.
  • Marketing – in order to generate interest in its products and services, a business must advertise and market itself. This will help it to gain sales and increase its market share.
  • Expansion – in order for a business to grow, it requires finance. This needs to be either generated internally or sourced from outside the business.

Businesses require finance for different lengths of time, depending on why the money is required. For example, a temporary cash flow shortage requires a short-term solution, such as an overdraft. However, the purchase of a machine or a new factory requires finance over a much greater period of time, such as a mortgage.

The finance function monitors and controls the finances of the business so that the business can operate.