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,

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

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.