Whar are the types of business …

NEED OF BUSINESS FINANCE:

Uses

1. Fixed Capital Requirement: In order to start a business, funds are needed to purchase fixed assets like land and building, plant and machinery.The funds required in fixed assest remain invested in the business for a long period of time.
2. Working Capital Requirement: A business needs funds for its day to day operation. This is known as working Capital requirements. Working capital is required for purchase of raw materials, to pay salaries, wages, rent and taxes.
3. Diversification: A company needs more funds to diversify its operation to become a multi-product company e.g. ITC.
4. Technology upgradation: Finance is needed to adopt modern technology for example uses of computers in business.
5. Growth and expansion: Higher growth of a business enterprise requires higher investment in fixed assets. So finance is needed for growth and expansion.

 Classification of Sources of Funds

(i) Period Basis On the basis of time period, a business finance can be classified in three categories.

(a) Long Term Finance Funds which are required to be invested In a business for a long period of time, that is more than five years are known as long term finance.

(b) Medium Term Finance The finance required by business enterprises for more than one year but less than five years is known as medium term finance.

(c) Short Term Finance The finance required for a short period upto one year is known as short term finance.

(ii) Ownership Basis On the basis of ownership, the sources can be classified into ‘owner’s fund’ and ‘borrowed fund’,

(a) Owner Fund It refers to the funds contributed by owners as well as the accumulated profit of the company this fund remains with the company and it has no liability to return this fund. e.g., equity shares, retained earnings.

(b) Borrowed Fund It refers to the borrowing of the firm. It includes all funds available by way of loans or credit

(iii) Source of Generation Basis Another basis of categorising the sources of funds can be whether the funds are generated from with in the organisation internal or from external sources.