Financial management of your small business encompasses more than keeping an accurate set of books and balancing your business checking account. You must manage your finances so you don’t overspend and so you remain prepared for all expenditures, as well as profit distributions. Your financial management responsibilities affect all aspects of your business. A company that sells well but has poor financial management can fail.
Importance of corporate finance are:-
- Research and Development : A company cannot survive without continuous research and development. The company has to go on making changes in its old products. It must also invent new products. If not, it will be get automatically thrown out of the market
- Motivating Employees : Employees must be given financial incentives, such as bonus, higher salaries, etc. They must also be given non-financial incentives such as transport facilities, canteen facilities (eatery), etc.
- Expansion and Diversification : Expansion means to increase the size of the company. Diversification means to produce and sell new products. Modern machines and modern techniques are needed for expansion and diversification. Finance is needed for purchasing modern machines and modem technology.
- Dividend and Interest : Finance is needed to pay dividends and interest.
- Replacement of Assets : Plant and Machinery are the main assets of the company. They are used for producing goods and services. However, after some years, these assets become old and outdated. They have to be replaced by new assets.
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