IMPORTANCE OF FINANCE FOR AN ENTREPRENEUR

Finance is the money available to the entrepreneur to spend on his business needs.

Right from the moment an entrepreneur thinks of a business idea, there needs to be cash. As the business grows there are inevitably greater calls for more money to finance expansion. The day to day running of the business also needs money.

The main reasons an entrepreneur needs finance is to:

Start a business

Depending on the type of business, the entrepreneur will need to finance the purchase of assets, materials and employing people. There will also need to be money to cover the running costs. It may be some time before the business generates enough cash from sales to pay for these costs.

Finance expansions to production capacity

As a business grows, it needs higher capacity and new technology to cut unit costs and keep up with competitors. New technology can be relatively expensive to the business and is seen as a long term investment, because the costs will outweigh the money generated for a considerable period of time. New technology is not just dealing with computer systems, but also new machinery and tools to perform processes quicker, more efficiently and with greater quality.

To develop and market new products

In fast moving markets, where competitors are constantly updating their products, an entrepreneur needs to spend money on developing and marketing new products e.g. to do marketing research and test new products. These costs are not normally covered by sales of the products for some time, so money needs to be raised to pay for the research.

To enter new markets

When an entrepreneur seeks to expand, he may look to sell their products into new markets. These can be new geographical areas to sell to or new types of customers. This costs money in terms of research and marketing e.g. advertising campaigns and setting up retail outlets.

Take-over or acquisition

When a business buys another business, it will need to find money to pay for the acquisition. This money will be used to pay owners of the business which is being bought.

Moving to new premises

Finance is needed to pay for simple expenses such as the cost of renting of removal vans, through to relocation packages for employees and the installation of machinery.

To pay for the day to day running of business

A business has many calls on its cash on a day to day basis, from paying a supplier for raw materials, paying the wages through to buying a new printer cartridge.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s