Corporate finance is the lifeblood of any business. It relates directly to how a business will have enough money to deal with day to day issues, plan for the future and even deal with the funds that are already available.
Finance is a complicated area, but, it is one that every business has to master if they are to succeed. Here are the 3 main areas of concern in corporate finance that you must be aware of.
For any business to flourish they need to invest in themselves. The level and type of investment will depend on the business. For example, a factory will need to plan for new machinery in the future, or a car dealership may want to purchase more expensive cars to move the dealership up the ranks.
Whatever the goal it requires funds and the business will need to raise these funds. While it would be nice to have the capital spare in the business, the reality for most businesses is that corporate finance will be necessary.
By using a specialist you’ll have someone who knows and understands your business, helping to ensure you have the funds you need as you need them.
Working capital is simply the money that is used on a day to day basis. You need to be able to purchase supplies, pay staff, and deal with other daily expenses. These should all be funded by the sale of your goods and services.
Tracking the incomings and outgoings of your business allows you to see how much working capital you have. It will also enable you to plan for purchases by knowing what funds are left over.
Being aware of your working capital can help you to highlight cash flow issues and plan your way around them. This can mean adjusting supplier payments or you may feel the need to increase prices.
Capital budget is simply the process of understanding what the business is likely to need in the future. This is different from capital raising, where you actually need the funds.
You can use capital budgeting to assess the direction the firm is moving in and what expenditure is likely, this is a theoretical exercise which should cover all the different possibilities.
By keeping track of this you’ll be able to build an accurate picture of your business with your corporate specialist. This will help you to know what capital needs to be raised and when. Being able to plan this ensures that you are ready when you need to be.
There is no doubt that the bottom line is the most essential part of a business operating; if you’re not making a profit the business is going to fail. Understanding the 3 areas of concern in corporate finance will help you to see the issues before they happen and plan around them; keeping your business going even if the balance sheet and the profit and loss suggest it’s not viable.