5.1 Business finance

Businesses need finance for start-up assets, working capital, expansion, emergencies and investment. The amount, timing and purpose determine which source is suitable.

A profitable firm can still fail if cash arrives after bills are due. Finance decisions therefore connect investment, liquidity, risk, control and cost.

A retailer may need a loan for equipment but enough working capital to pay wages and suppliers before customers pay.

“Need for finance” is not only about growth; routine operations can create a funding gap.

Working capital is current assets minus current liabilities. It supports day-to-day payment of wages, suppliers and other obligations while inventory and receivables are converted into cash.

Too little can create liquidity pressure; too much can mean cash is tied up inefficiently. Inventory, credit terms and collection speed all affect the cycle.

A wholesaler may show a profit but need extra cash before customers settle invoices; faster collection or better stock control can reduce the gap.

Positive working capital is not automatically healthy, and a single snapshot does not show cash timing or quality of assets.