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Why firms need finance Businesses need finance to:- Start a business a new business will need finance to buy assets, materials and employ staff. There will also need to be money to cover the running costs. (running costs = ongoing costs such as electricity, rent, insurance) Finance expansions to production capacity As a business grows, it needs to be able to produce more and new technology and machinery to cut costs and keep up with competitors. To develop and market new products a business needs to spend money on developing and marketing new products e.g. to do marketing research and test new products in “pilot” markets. To enter new markets When a business grows it may sell products into new markets. These can be new geographical areas to sell to (e.g. export markets) 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 money to pay for the acquisition (acquisitions involve significant investment). To pay for the day to day running of business A business needs money to pay for day to day items such as paying a supplier for raw materials or paying the wages or buying a new printer cartridge. |