The economy is a highly intricate system. Many factors combine to shape the course of an economy and a country’s growth and stability. Some economists define a country as suffering from a macroeconomic problem when there is a severe imbalance between spending and income, a situation that occurs because of excess savings and investments or poor business finance management. The result is that the gross domestic product (GDP) is hampered by persistent deficits in current assets and current liabilities. This kind of fiscal distress results in the inability of a country to obtain the international credit it requires to borrow for its projects and activities and eventually leads to a recession.
A company needs both an accumulation of capital and an ability to access funds when required in order to survive in the business environment. If it is unable to access capital from any source then its only means of finance is the purchase of assets or its sale of assets. A company either needs to accumulate new inventory or liquidate existing inventory in order to raise the funds to finance its growth and expansion plans. In either case, its cash flow will be hampered until the business is able to raise enough capital through its own operations or through borrowing funds from others. Business finance refers to the management of these problems through the procurement of external financing.
The purpose of business finance is to ensure that entrepreneurs, businesses and consumers can meet their financial needs through a well planned and executed strategy to achieve their goals and objectives. This is achieved through effective budgeting, financial management, efficient investment management and use of sound risk management principles. There are many ways of managing the finance of a business ranging from the simple to the complex but all require an understanding of the key principles and good budgeting skills in order to be successful.
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