9609 · 5.1.1
The need for business finance — FAQ
Frequently asked questions for 9609 The need for business finance. Direct answers first, then deeper explanation — then practise with marking.
If a business is making a profit, does it still need to worry about finance?
Yes, absolutely. Profit and cash are not the same. A profitable business can still fail due to a lack of cash (insolvency). For example, if it sells goods on credit but has to pay its own suppliers immediately, it can run out of cash to pay bills, even while being profitable on paper. This is known as a working capital or cash flow problem.
Is 'expenditure' just another word for 'cost'?
Not quite. While related, 'expenditure' refers to the act of spending money. The key distinction in business is whether that spending is capital expenditure (an investment in an asset) or revenue expenditure (a running cost). All expenditure represents a cash outflow, but how it is classified has very different impacts on the financial statements and profit calculation.
Does a business only need finance when it's starting up or in trouble?
This is a common misconception. Finance is needed throughout the entire life cycle of a business. Successful, growing businesses have a constant need for finance to fund expansion, develop new products, enter new markets, and increase working capital to support higher sales volumes. Finance is a tool for growth, not just a solution for problems.