Cash flow is necessary for a business to operate at all times
Financing is needed as they are used as
Capital for start-ups
Growth/expansion
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
Retained profits
Fixed cost
Expenses
Cash flow
Business cycle
Business objectives
PAST YEAR QUESTIONS
Identify two reasons why a business might need finance. (2 marks) May/June 2018/11
Outline two reasons why a business might need finance. (4 marks) May/June 2020/12
Identify two reasons why obtaining finance may not be easy for a new business (2 marks) May/June 2019/11