Why do business need financing

Updated: Feb 22

Cash flow is necessary for a business to operate at all times


Financing is needed as they are used as

  1. Capital for start-ups

  2. Growth/expansion

  3. Survival


Capital for start-ups


Capital is needed to start a business as it needs to pay rent for the premise it operates at. Machines, materials, tools and equipment will also be needed to start operation or service. There may also be recruitment cost as a business may need to hire workers.


Growth/Expansion


In order for a business to grow, it would need to expand its premise, hire new workers, purchase more or replace equipment and tools to develop new products. A business may also need to invest in R&D to develop new technology or conduct market research to identify customer preference.


Survival


During a recession, a business may experience a fall in demand, resulting in loss of revenue and profits. To continue to operate, a business will require cash to continue paying employees and rent (fixed cost/expenses) until the economy recovers and demand increases.


RELATED CONCEPTS


  1. Retained profits

  2. Fixed cost

  3. Expenses

  4. Cash flow

  5. Business cycle

  6. Business objectives


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