The Importance of Business Finance

It takes money to make money, so the proverbial saying goes. Businesses have to consider their finances for so many purposes, ranging from survival in bad times to bolstering the next success in good ones. How you finance your business can affect your ability to employ staff, purchase goods, acquire licenses, expand and develop. While finances are not necessarily as important as vision and a great product, they are crucial to making the good stuff happen.
Starting Capital
Every new venture needs seed money. Entrepreneurs only have dreams and ideas until they have some capital to put their ideas in motion. Whether it's a product or service, you will need a way to create and deliver it -- as well as enough money and time to lay the groundwork of selling and establishing important relationships. Most business owners face the critical choice between debt and equity financing. A small business loan leaves you free to own and have absolute control over your company while it also leaves you lasting financial obligations. Equity gives you cash, but you have to share the success. The critical decision in your financing will determine how your business will work from that point onward.
Debt Ratios
Finances are about more than money in your hand. While most businesses have some amount of debt -- especially in the beginning stages -- too much debt compared with revenues and assets can leave your with more problems than making your loan payments. Vendors and suppliers often run credit checks and may limit what you can buy on credit or keep tight payment terms. Debt ratios can affect your ability to attract investors including venture capital firms and to acquire or lease commercial space.

Business Cycles
No matter how well your business is doing, you have to prepare for rainy days and even storms. Business and economic cycles bring dark clouds you can't predict. That's why smart businesses create financial plans for downturns. Cash savings, good credit, smart investments, and favorable supply and real estate arrangements can help a business stay afloat or even maintain momentum when the business climate is unfavorable.

Growth
Success can bring a business to a difficult crossroads. Sometimes to take on more business and attain greater success, a company needs significant financial investment to acquire new new capital, staff or inventory. When business managers hit this juncture, they have to wade through their financial options, which may involve infusions of equity capitals -- perhaps from venture capitalists. Every situation is different, but smart managers consider the cost of success and their options for obtaining growth financing.

Payroll

Nothing spells imminent death like a company being unable to make payroll. Even the most dedicated staff won't stick around long once the paychecks stop. The larger an organization gets, the larger the labor costs. Above all, companies have to ensure they have enough cash on hand to make payroll for at least two payroll cycles ahead -- if not more. Financial planning to ensure your payroll accounts are in strong shape are essential to the integrity and longevity of your company.

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