Business is, of course, essentially the acquisition of assets. The primary assets of a business are capital assets. The amount of capital stock owned by a business is called its equity. Equity is the difference between total assets and total liabilities. The concept of equity is actually one of the biggest reasons why business is considered a marketable enterprise.
Equity finance is a field of finance that basically deals with the question of why and how an individual, business or governmental entity to acquire the capital goods necessary to operate their business. It also goes by the name of business investment banking since it mainly deals in the buying and selling of securities in the financial markets. These securities can be equities (stock shares) or derivatives (contracts for exchange). Equities are sold for cash, while derivatives are traded for another form of value, called cash flow.
When looking at the question of business finance, the first thing to consider is capital financing. This includes bank loans, corporate bonds, and other forms of financial obligations that businesses can raise. Raising funds requires a financial manager to work with investors and banks. Once these resources are obtained, the manager turns around and uses them to make certain business operations occur. An example would be purchasing necessary equipment, materials, and supplies and then delivering the items to customers.
As stated before, business finance deals primarily with the utilization and distribution of capital funds. Some examples of capital funds would be retained earnings, reserves, short-term loans, equipment, and raw materials. All of these resources will be needed throughout a given period of time to conduct business operations. The key is to know where to find these funds when they are needed, when they are available and then to use them efficiently to increase profitability. Capital funds are crucial to the successful operation of any business.
Another method of raising capital is through equity finance. Equity finance occurs when a business partner borrows money that is repaid over a period of time. For example, a partner may borrow funds to start a business. The partner may then repay the borrowed funds through monthly payments. Equity finance is a popular method of raising capital among small businesses, but this method requires a significant amount of common equity in order to be raised.
Businesses also have the option of using commercial mortgage or bad debt finance. These are two different methods of business finance. Commercial mortgage financing occurs when a commercial property is used to satisfy the debt of a business owner. In order to qualify for commercial mortgage financing, a business must demonstrate the ability to generate profits in order to justify paying off the debt.
The final method of business finance, we will discuss is short term financing. Short term financing occurs when a business needs cash for only a particular time period, typically between one to twelve months. These loans are typically obtained for less than one year and may be renewed periodically at progressively higher interest rates. Businesses obtain these loans to fund short-term product development projects, equipment purchases, or to make payroll expenses.
As you can see, business finances play an important role in business growth and operations. Without these financial tools, many of our business decisions would not be possible. As always, when you’re considering any of these options, it’s important to consult with your accountant or business adviser. They can provide you with advice based on their experience and on your unique circumstances. They can help you find the best ways to access these funds, as well as help you manage them properly.