Category Archives: Business Finance

Use of Equity and Debt finance through loans and debentures

 

Every business required finance to carry out its business operations. Finance is the bloodline of organizations. For business corporations finance come in the form of equity or debt. When a business is started, it is done by making an investment which is known as Capital. Equity refers to a share in the share capital of the company. The investor of the company shall keep all the profits with them or shall split it and can share with those who are willing to buy a share in the capital, and a person who buys a share is known as shareholder.

The shareholder will be entitled to net profits of the company after paying taxes and other statutory obligations. They would also have voting rights enabling them to participate in the day to day business operations. Any important business decision cannot be carried out without the approval of the shareholders. They are literally the owners of the company. If majority of the shares say more than half of the total shares are held by an individual or few number of people they control all the decisions in the company.

Whenever the company makes a profit, a part of it goes to the equity and thus increasing the value of individual share and when it makes a loss, it is split and divided equally over the equity leading to decrease in it its value.

Debt funds refer to loans and debentures. Debenture holders are entitled to receive periodical interest payments in return for the funds they have provided to the company. They do not have any voting rights except during meetings related to debentures and debenture holders. Debenture holders are the creditors of the company. They are entitled to receive their interest even if the company is earning profit or not. They enjoy a higher level of security than equity shareholders in terms of receiving their capital back. Debentures can be redeemed after the expiry of a particular period of time beyond which the relationship of the company and debenture holders comes to an end.

 

Basic Financial Management for Entrepreneurs

 

Entrepreneurship is more than just starting or doing a business, it is coming out with a new idea, venturing into it and laying the foundation for the business set up. Entrepreneurship is donning various hats and becoming the master of it. If your business is in the baby stage where funds are low but demand is high you may have to engage yourself deep into managing finance in a better way so that you have control as well as an idea of where your money is being spent or being blocked.

The initial capital to start up a venture and then having necessary funds to finance the working capital which is required for smooth running of business are the two most aspects of financial management for entrepreneurs.

Entrepreneurs should basically give impetus to their equity and debt capital. It is essential to repay debts on a timely basis without any delay in order to convince creditors of smooth functioning.

Further, fixed assets should be financed only out of long-term funds to avoid corrosion of capital funds. Equity capital is the costliest form of capital for any business. The demands of dividend and growth are sky high requiring entrepreneurs to give satisfactory quarter and year end results that generate returns for the shareholders. For businesses that are funded by venture capitalists it is necessary that their share of return is provided for promptly in order to sustain investments and capital.

Further expansion plans cannot be charted out with the help and support of venture capitalists. Entrepreneurs should also train themselves in managing their organization’s finance in order to ensure that the economic resources are best used. Few do’s for entrepreneurs are saving funds for the future expansion, to allocate funds to ensure job security of employees and the firm and few don’ts are over pricing, rapid expansion, paying more salary than what the work is worth for and such.

 

How finance helps Small and Medium Enterprises

 

Money is essential to begin and run any kind of business. Based on its financial capability in terms of assets, capital, operational size and such things a business is classified into small and medium enterprises.

As soon as an individual or a group of individuals come up with a new idea to venture in or want to expand their existing business set up, the biggest requirement for such a new enterprise or a small and medium enterprise is quick access to funds.

Although there are lot of government schemes that are enacted for providing financial support to budding enterprises it is not easily available for all quickly as and when it is needed. Finance enables a new firm to establish itself in its industry. It can buy the necessary raw materials and conduct research and development until coming up with a product that can be sold in masses in a promising market.

The company will also be able to keep itself floating in the market until it is able to establish a steady stream of income. In addition a strong financial background will ensure that the company is able to pay off its monthly dues of wages and salaries, factory repairs, maintenance, taxes, service charges and vendor bills on a timely basis. External sources of finance like angel investors, investment bankers and venture capitalists will also be able to help new enterprises in setting up a strong foothold until they are market ready for business. To conclude the need for finance is much more significant for a new business than one that already exists in the market.

Also, there is an increasing popular way of getting finance for businesses and it is venture capitalism whereby big financiers invest in capital of small businesses and get a hold of its share capital.

 

Corporate Financial Management

 

Finance is the bloodline of any business. It provides the necessary funds and working capital for purchasing raw materials, buying plant and equipment and for paying wages or salaries. It is essential for every enterprise to have a corporate financial management team or department which can control and carry out the financial operations of an enterprise smoothly. The department should have controls for payments, receipts and other financial outlay which are usually required during the ordinary course of business. Further, they should also be prepared to incur additional expenditure which was not estimated for in the budget allocations.

As a part of the corporate financial management process an enterprise should have various controls for calculating total cash flow, funds requirement for the immediate quarter, working capital requirements, ratio analysis, etc. These financial tools enable a company to organize its finances in a better way and plug all possibilities of revenue leakage. Further, it will also help in identifying situations where better financial control can be exercised for maximizing revenue returns. Corporate financial management is not a task that any amateur can take over and complete. It requires the exercise of expert knowledge and experience which comes only with academic qualifications and practical experience. That is why in Business owners prefer to have Certified Financial Experts as Financial Consultants to audit and monitor the entire end to end financial process.

In today’s business world, how complicated and complex be the business process it can be easily managed with the help of technology. With the aid of technology Corporate Financial Management has become an extremely easier task, there are several ERP software, financial statistical tools and Billing & Accounting systems that comes with separate module for Finance management which can be used for all sizes of businesses to manage to their short term and long term finance.

 

Top financial blunders done by every Businesses and Individuals

 

Money is one ultimate thing which is commonly needed and used by any individual across the world irrespective of their race, gender or background. When it concerns with money there are two things one is making it and the other is losing it.

You could be an owner of an operational business enterprise, or just a student, home maker or finance professional, it is essential to know where one can lose money. Quite often people lose money due to lack of planning. If one knows when and where they would require money well in advance it becomes easy to procure them without hassles. Last minute fund raising for any purpose will prove to be costly with high interest rates. Further, it is not going to be easy to procure money in the last moment from bankers, lenders or from anyone near and dear. Hence, it is highly necessary for people to manage the existing cash flow and thus be prepared for situations of necessity.

Budgeting and expense tracking is not just for accountants. It is essential for each and everyone to have a track of their expenses in order to know where they are over spending or being careless in spending money. An awareness of the needs and demands will ensure that money is being spent only for necessary reasons and not splurged unnecessarily. Credit cards are best if stayed away from and in case if you are planning to use them then a thorough understanding of the credit cycle and billing cycle along with interest and penalty charges are required. They are to be used only for very immediate and urgent situations as they come with very high interest rates higher than any bank interest rates of any other loans such as home loans, vehicle loans or personal loans.

 

Why Companies Stay Private over real Financial position ?

 

The concept of business is implemented through a set up called companies and firms. There are companies that are private, public, limited and such. Most of the companies during their start up stage remain private. Some of these companies decide to open their shares to public in order to make more capital available for their investments and expansion needs, on the other hand.

In spite of several advantages of going public, here are the reasons why companies stay private,
– First and foremost reason is complete ownership, which lets the owners to take decisions without being answerable to non-owners or public on their decisions and actions
– Need not share profits and can retain the major part of revenue
– Not subjected to auditing and monitoring of many Associations and Organizations that monitor public companies and hence need not worry about adhering to stringent standards and that means flexibility on administration
– Lesser information available to public when remain private and closed and hence key strategies, decisions, business secrets won’t get leaked out which adds advantage in competitive business scenario
– Lesser dividends and interests when private companies go for venture capital sources for funds instead of public through share market.