Business finance is a general term used to describe things regarding the study, generation, and allocation of funds. It involves all aspects of the business cycle, including pricing, timing, incentives, risk, capital structure, cost of capital, and ownership structures. The study of business finance is the basis of any sound financial planning. While the research is broad, there are four main areas that business managers should focus on. These include managing debt, protecting equity, funding growth, and identifying opportunities. All of these areas are interdependent and must be handled holistically.
Managing debt is the responsibility of the Business Finance manager. This includes both secured and unsecured loans. The financial manager will work closely with the company owners to determine the most effective methods of debt management. In the past, the CEO or CFO often handled this role, but today, many organizations choose to hire an outside financial manager to understand business finance better. The CFO can also become overwhelmed when the numbers get too large and cannot make sound financial decisions.
Protecting equity is the responsibility of the business finance manager as well. This includes both buying and selling of property, equipment, and tenant financing. As the business owner, you do not want your equity to be used by your competitors without your permission. Thus, you will require a qualified and experienced professional to manage this aspect of your cash flow.
They are capitalizing on opportunities in the last topic covered in this article. These opportunities could be stock market-related, real estate-related, or a combination of both. In fact, the possibilities are endless as most new businesses are in some form of capital formation. The most common forms of capitalization are debt financing, venture capital financing, and leasing.
In closing, let us look at what we have learned from this discussion. Business finance is all about risks and protecting your capital. It involves the purchase of assets, debt financing, and long-term plans. When purchasing any asset, remember that you must calculate the cost of capital against the value. We strongly recommend that you work with a certified public accountant (CPA). A CPA can be the best person to help you with your business finance decisions.
The CPA can provide a comprehensive analysis of your cash flow, income taxes, lease terms, and the cash flow needs of the business over the long term. In addition, the CPA can assist you with insurance financing and offer financial tools to maximize your return on investment. Finally, they can provide long-term business finance consultation. Many times, we believe that finance teams should be supported by an investment manager. The investment manager can determine how the different assets will fit into your overall strategy.
The investment manager can identify additional spending areas, whether on equipment or adding to the capital funds. If you are going to raise money from equity investors or receive loans from banks, the investment manager can advise you on how you should structure these efforts to increase the chance of success. In short, we believe that adequate business finance requires a multi-pronged approach. It is not unusual for small businesses to seek debt or sell shares from multiple sources in today’s economy. As always, you want to do business with the right people when the time is right.
The most critical aspect of working capital management is that you do not overestimate the cash flow impact of one event. If you take a negative view of one month’s cash flow, you risk missing opportunities for increasing profits. It is also essential that your financial statements include accurate information, even for the short term. To learn more about how you can improve your cash flow performance, feel free to contact a certified public accountant (CPA).