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

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

Costs are the expenses involved in making a product. Firms incur costs by trading.

Some costs, called variable costs…