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Business finance refers to the funds required to carry out the establishment and running operations of a business. These operations include purchase of premises and payment of wages and salaries. The funds required to finance the expansion of a business are also considered a part of business finance.
The following are the reasons why a business needs funds.
(a) Fixed capital requirements: For setting up a business, fixed assets such as building, machinery, furniture and fixtures are required. The requirement of funds to purchase these assets is known as fixed capital requirement. The level of requirement of funds depends upon the size and nature of a business.
(b) Working capital requirements: Firms require funds for financing their day-to-day operations such as purchase of raw materials and payment of wages to workers. The requirement of funds for such operations is known as the working capital requirement.