A business cannot be expected to stay running and flourishing without consistent and increasing feeding of money fuel to its engine. So, it is but natural for entrepreneurs to source finances when they embark on setting up a new business venture. It is a standard practice for entrepreneurs to make financial plan while starting a business. This helps the aspirants to estimate the fund requirement for inclusive business functions.

Generally, financial plans are chalked out based on company’s financial considerations, viz. Company’s financial objectives, company’s nature and size, company’s growth and expansion plans, capital market trends and at last but not the least government regulations relevant to the industry in question.

Further, financial requirement may be of two types, namely,

Fixed Capital and Working Capital. While fixed capital is required for purchasing fixed assets like Plant and Machinery, Land and Building, Vehicles and other equipments, Working capital is required by a company to meet its need for current assets and liabilities, like purchase of raw material, pay wages, salaries, rent, fuel, electricity and water.

As sole proprietorship and partnership firms are generally small in scale, their requirements can be met through personal savings or loans from friends or family or banks or financial companies. However, in a private and public limited company, the fund requirement is hefty and is met through issue of shares, issue of debentures, loan from financial institutions, public deposits and reinvestment of profits. The short term capital requirements are met through trade credit, cash credit, bank overdraft and factoring.