Understanding Business Finance Basics

Business finance is a very broad term encompassing a variety of topics that deal with the organization, generation, management, and assessment of capital and other financial assets. The various topics covered in business finance are operations research, business valuation, business planning, investment and business funding, corporate finance, working capital management, and sales and marketing.

These topics are often interrelated to one another and there are many important subtopics that overlap with other important topics such as those in the area of banking or insurance. One example of overlapping topics is risk management. Many businesses also need to consider long-term investment strategy and funding requirements. Business finance is an extremely important topic for any company of any size and there are numerous business finance terms that one must be familiar with in order to effectively carry out day-to-day business functions.


In some regards obtaining finance can be as easy as walking into a bank and talking to a representative about investing your business capital. In other instances obtaining finance may require that you invest in a corporate vehicle such as a limited liability company ( LLC) or trust. While both of these structures have certain advantages they are completely different from one another and should be thoroughly researched prior to making any decision as to what type of entity you wish to operate. Each type of business finance structure has its own advantages and disadvantages and it is important that you fully understand each before you make a final decision regarding which path you wish to take.

Business finance can be defined as the money you are willing to pay off with your business capital during years when your company is growing and generating profits. Business finance is used to fund short-term debts by businesses in order to obtain new capital that will allow them to expand their current operations. Most business owners choose to obtain short-term financing instead of raising a traditional round of equity because obtaining funds in this fashion is often much easier and less costly to do than raising capital through equity. Typically a company only needs to raise small amounts of finance rather than a large amount of funds in order to meet its cash flow requirements.