This document discusses the role of finance in business. It defines finance and sources of finance, and explains why businesses need finance for starting up, everyday bills, expansion, growth, and replacing equipment. The key points are: - Businesses obtain finance from internal sources like retained profits or selling assets, or external sources like loans that create debt. - Finance is classified as short-term (up to 3 years), medium-term (3-10 years), or long-term (over 10 years). - Short-term finance is needed for daily operations and cash flow management, which is the flow of money into and out of the business. Maintaining sufficient cash flow is important for business survival.

1. Role Of Finance in Business
“Finance”

2. What Do You Need to Know for
Business?
Know about sources of finance
Purpose of different sources of finance

3. What is Finance?

4. Definitions
FINANCE – This is money
SOURCES OF FINANCE – This is
WHERE we get finance from

5. Why Do Businesses Need Finance?
Businesses
need money
for…
For starting up Everyday bill payments
Expansion
Internal Growth
Take over bid
Replace
machinery/equipment

6. Reason of finance in Buisness
“Different sources of finance have
different implications for a
business, so it is important that the
most appropriate method of
finance is chosen for the purpose
that the business has in mind”

7. Sources of Finance

8. Internal Sources
Finance which is raised internally, it does
not increase the debts of the business.
Examples:
Retained profit/sale something
Personal saving
Sale of unwanted assets

9. External Sources of Finance
Finance provided by people or institutions outside the
business, creates a debt that will require payment.
Examples:
Loans

10. Time Periods for Finance
Finance is generally considered to be
either:
MEDIUM
TERM
3 – 10 YEARS
LONG
TERM
OVER 10 YEARS
SHORT TERM
UP TO 3 YEARS

11. Short-term Finance
Short-term Finance is needed for the
day-to-day running of a business and is
usually for a period of up to 3 years
In order to understand short-term
finance it is necessary to understand the
concept of CASH FLOW

12. Cash Flow
CASH FLOW – A business needs sufficient
inflows of cash to finance its day-to-day
outgoings.
BUSINESS
INFLOWS refers to
money received by the
business
EXAMPLES:
•Sales revenue
•Capital
•Loans
•Grants
OUTFLOWS refers
to money paid out by
the business
EXAMPLES:
•Purchases
•Rent & Rates
•Wages & Salaries

13. Why is Cash Flow Important?
Think of a business as a bath without a plug…
If the bath is ever
empty the business
is in TROUBLE – it
has a CASH FLOW
PROBLEM.
There should
always be cash
available – so the
bath is never
empty!
If this is not the case the business needs
short-term finance to overcome this problem!

14. Sources of Short-Term Finance
All commercial banks offer various methods of short-
term finance for businesses:
 Short-term Loan
 Hire Purchase (External)
EXTERNAL SHORT-TERM
FINANCE

15. Continued…
Length of Time
Cash Flow
Existing
Debt
Internal
Vs
External
Control
Security
Type
of business
Factors
influencing the choice
of finance