Finance may be defined as such administrative area or organization, or such a group of Administrative functions, related to cash and Debt system, which may provide cooperation to the organization in procuring required sources for adequate fulfillment of its objectives.
Now, the question arises, which are the factors influencing the financial system of the business.
In response, it may be said that normally fixed capital and working capital is required for a business or enterprise.
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Factors Affecting Business Finance
An entrepreneur should manage finances, by keeping the following points into consideration:
1. Nature of Business
If the nature of the business or enterprise requires heavy machinery and implements for production of the products, then fixed capital will be substantially required, otherwise less fixed capital will be required.
On the contrary, if the nature of the business is of manufacturing consumer goods, then the financial requirements will be high.
Related: Top 10 Need and Importance of Business Finance.
2. Size of Business
If the business is large-sized, it will require more land and buildings, machinery and implements, etc.
To meet these requirements, the high volume of fixed capital and working capital will be required, otherwise less capital will be required.
3. Production Technique
If the technique of production of the business is labour intensive, the financial requirements will below.
However, if production is by use of machinery in place of labour and the production process complicated, the higher volume of finances will be required.
4. Promotion Cost
If the business requires promotion expenses, initial expenses and cost on Goodwill, at the time of its promotions, then the high volume of finances will be required.
Related: 16 Factors Responsible for Rapid Growth of Promotion (Explained).
5. Economic Social Environmental
Economics social environment also influences the finance.
If people have the tendency to make a higher investment in industries, in place of incurring much expenditure on procuring commodities and services, then the requirement of Finance will be low, otherwise, it will be high.
6. Time Taken in Sales of Production
In Business where the products sell immediately after production, the requirement of Finance is less.
On the contrary, if time in the sale of the products is much more, the requirements of Finance will be more.
These internal and external factors also affecting the capital structure.
7. Terms of Purchase and Sale
Financial management depends upon the terms of purchase and sale.
If in a Business, the material is available on credit and its sale is in cash, then the requirement of Finance will be lesser.
In contrary conditions, the requirements of finances will be much more.
Related: 18 Major Factors Affecting Capital Structure (Complete List).
8. Business Cycle
If the business cycle is in the shape of the boom, the requirement of fixed capital will be low, but the requirement of working capital increases.
9. Form, Philosophy and Style of Management
The financial requirement is influenced by the form, philosophy, and style of management in the enterprise.
If the Business is managed by a professional person and it has a good reputation in the money market, then the business may not require a high volume of finances.
On the contrary, if the management is by traditional methods and confidentiality is given more importance, then financial requirements are much more.
Thus, these lists and explanation of financial factors that influence the value of a business. And also factors affecting a business’s choice of source of finance.
10. Possibilities and Rate of Development Extension of Business
Businesses with possibilities of higher development and extension have low financial requirements, otherwise, the requirement of Finance is high.
These all factors to consider when choosing business finance
11. Scale of Distribution
If the entrepreneur gets the sale of his products only in large quantities through its sellers, the finance in large quantities will be required.
On the contrary, if the sale is got done in small quantities, finance in low quantity is required.
12. Other Factor
Besides aforesaid factors, many other factors or elements also influence the financial management of the business.
These are the availability of means of transport, possibilities of increase in money circulation, policies of Government, possibilities of War, etc.
Thus, now you know what are the factors affecting business finance?
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