Why business needs finance
Finance refers to sources of money for a business. Firms need finance to:
- Start up a business, eg pay for premises, new equipment and advertising.
- Run the business, eg having enough cash to pay staff wages and suppliers on time.
- Expand the business, eg having funds to pay for a new branch in a different city or country.
All businesses should keep proper accounts. This involves the calculation of revenue, costs and profit.
Revenue is the income earned by a business over a period of time, eg one month. The amount of revenue earned depends on two things - the number of items sold and their selling price. In short, revenue = price x quantity.
For example, the total revenue raised by selling 2,000 items priced £30 each is 2,000 x £30 = £60,000.
Revenue is sometimes called sales, sales revenue, total revenue or turnover.
Costs are the expenses involved in making a product. Firms incur costs by trading.
Some costs, called variable costs…