Business Finance

Financial planning is the application of planning to various aspects of finance function. Basically, business finance involves the formulation of a financial plan that states the quantum of finance required, the pattern of financing and the policies to pursue for the administration of the financial plan. A business enterprise requires short-term and long-term capital. The total capital required by a concern is called capitalization. The short-term capital or the working capital is the capital required to meet the day-to-day obligations or the operating expenses. The long-term capital is required to acquire the fixed assets. Generally, on a conservative ground, a portion of the working capital is also met out of long-term capital.

The capital required may be collected from different sources. A substantial share is raised from internally generated funds. The remaining part is raised from outside sources such as issue of shares and debentures and loans. This pattern of financing is known as capital structure. It is designed in such a way to obtain the required amount needed at the lowest possible cost. Once the required amount is raised, then the funds are allocated in the best possible way to obtain the maximum benefits.

Implementing proper control systems can ensure the efficient use of the funds. Finally, all-important matters are reported to the top management to take proper actions at the right time. The financial reports are analyzed to evaluate the performance of the firm. According to Cohen and Robin, business finance aims at determining the financial resources required meeting the company's operating program. Business finance also forecasts the extent to which these requirements are met by internal generation of funds and the extent that they will be met from external resources. Business finance helps in establishing and maintaining a system of financial control governing the allocation and use of funds.

Business Finance with Equity Finance

It has been said that nearly 61% of businesses are launched with either private capital or capital that is invested into their business by family and friends but investment doesn't have to stop with merely just your family and friends, which is why equity finance exists.

Equity finance is cash that is invested into your business in return for a share of your business. These investments of cash never have to be repaid and don't have interest attached to them. Equity finance is true risk capital as there is no guarantee that the investor will get their money back at all and these investments are not tied to assets that can be removed from your business should it fail.

The way in which investors get a profit from their investment is the fact they have a share in your business. This share means that investors either get money that is generated either through a sale of the shares once the company has grown or through dividends, a discretionary payout to shareholders if the business does well.

There are several types of equity finance such as business angels and venture capitalists. Each type of equity finance varies in the amount of money that is available for investment and the process of completing the deal.

If your business can support a growth rate of a least 20% you are more likely to be able to get equity finance. If you can't generate a growth rate of at least 20% in your business then you are unlikely to be able to gain equity finance. It is the idea of control and the prospect of higher returns if your business is successful that attracts people to invest in your business

Sadly however many people are still highly reluctant to seek the help of equity finance as they see the idea of it as 'relinquishing control' of their business. Many small businesses are especially reluctant if their business is growing fast. As a business owner you should ask yourself the following questions below making any decisions about choosing to use equity finance:

o Are you prepared to give up a share of your business as well as some of its control?

o Are you and your management team confident in the business and the products and services that are on offer?

o Does your business have a unique selling point?

o Do you have drive to grow your business?

o What industry experience and knowledge does your management team have?

You should also consider the following when it comes to obtaining equity finance:

o How much funding do you need?

o How much control are you hoping to retain?

o How long do you need your funds for?

Each business should investigate the options that are open to them when it comes to finance. Equity finance is medium to long term finance and is the perfect type of finance that is open to small businesses, especially if you are an entrepreneurial business. Entrepreneurial businesses are what private equity investors are mainly interested in. This is because they have aspirations and a high potential for growth.

If you are interested in the use of equity finance it is important that you speak to a financial team who can put you in touch with people who will be able to put you in touch with the right investors.

Helen is the web master of ARCH Entrepreneurs, specialists in Business Finance [http://www.archentrepreneurs.com/article/3/howmuchmoneydoyouneedtostartyourbusiness.html].

Money Matters: Finance Your Business and Keep Those ...

Some people dream of becoming an entrepreneur, but worry too much on where or how to finance their dream business - that is, where they should go and look for it. If you're one of them or even have engaged in business for years now, here are options for your finances.

1. Personal Savings. You are most likely to use this as a source of your capital because this is the easiest way to finance your business.

2. Borrow from friends or family. This is self-explanatory.

3. Loans. Bank Institutions are willing to help in providing businesses with finances. When you're thinking of borrowing funds from investors or loan institutions, much consideration should be given to the factors included in the financing deal: like the duration of the loan and the interest rate. Let's say you opted for a short term loan. They are appropriate to use when you want to grow your working capital requirements such as accounts receivable and inventory. However, if you consider purchasing new furniture and fixtures or opening a new store, you might want to take long-term loans as this you could pay for a much longer time.

4. Sell assets that are already idle. These may be in the form of old machinery or equipment and it may also be other forms of property. They may be old and may have slowed down the operation of your business, but if they're still useable, you might as well sell them.

5. Rent or Lease. Rent out a particular room or area in your building. This is also a great way of financing your business.

6. Equity Financing. You issue your equity ownership with the use of common shares. What's nice about this option is that the capital you borrowed is interest-free and there's no need for you to pay it back. However, your investors will become part-time owners of your business and may have an influence on you and on how to manage the business.

7. "Angels". These are actually people who just simply want to help you out. They are actually mysterious persons. Possibly they see something good in your business. Some people coined them as "Donors".

These are sources of financing your business. There may be other ideas out there, so it's better to venture out and know some of them.

If you want to track your finances as to where they come from or where they are being spent, check your cash flow statement. Using the Cash Flow Statement, you can budget your money as to what you should be spending. You can pretty much make an opinion or an evaluation over a certain operation - that is, whether your business gains or not. Probable predictions of your company's standing in the future can be made as well. Limitations of the Cash Flow Statement happens when, for an instance, you have generally less amount of cash on hand, yet are still earning a huge net income or vice versa. This could happen when there is more Accounts Receivable (or credit) than Cash.

UK Finance for Business

Running a business and becoming successful in that venture requires a lot finance and financial assistance. In UK finance for business can be got from different sources. Business related financial services are provided by many organizations in that field. UK finance for leasing a company or organization, UK finance for debt collection, UK finance for Venture Capital can also be arranged.

There are companies that help a business in hire purchasing and arranging for leasing. You can approach such dedicated companies for such services. UK Finance for hardware funding for the information technology business is also available in companies. Leasing services for small businesses, agricultural and industrial funding operations are available in companies dedicated to that service. A company called Richard Mares Asset Finance in UK finances for agricultural and industrial setups. If you need information on UK finance for equipment leasing, mortgages and commercial finance then you can approach companies like 1st Leasing Company and 1pm.co.uk. Many options for UK finance are available with them. Just check out their website for more details on the different types of finance available with them. For UK finance from £5,000 upwards you can approach companies like 1pm. They work closely with their clients to provide what they need.

UK Finance for companies in the information technology sector can get their financing options from companies like Corporate Computer Lease Plc in UK. Such companies make IT more affordable and you get the UK finance for almost any technology spends. They have successful records of financing in UK for even Fortune 500 companies. This is one of the fastest growing UK finance companies.

Companies like Corporate Business Finance fund you for Plant, Machinery and for other corporate financial services. They provide finance in UK for many services like hire purchase, leasing, operating leases, factoring, release of capital, and commercial mortgages. Each and every business may need a unique funding requirement and it is a tedious task to arrange for funding when you need to run your business. A lot of time is wasted in searching for proper funding. Under such circumstances you can approach companies like these for UK finance for your funding requirements.

For new start ups it is difficult to get finance in UK or elsewhere. Most of the finance companies will fund only the established businesses. But companies like Oak Leasing help even the start ups since they understand the difficulties that the startups face. The problems that the start ups face are only initially. If they have a proper business plan they could come up. The team at Oak leasing would finance your startups and for any new equipments that you need. More details are available in their website.

There are companies that fund only the big companies. Finance for big companies is given by UK finance companies like the Benington Securities. It is a private enterprise brokerage. They cover only the corporate investments. There are many companies that provide UK finance for even individuals. Companies like Troman finance provide funds for the individuals and small business firms.

Business Finance Software

Business finance software is fast gaining popularity, especially in computerized financial planning systems. At the heart of a computerized financial planning system is a model that specifies the relationships relevant to the firm. A computerized financial planning system helps in preparing proforma financial statements, estimating the requirement of external funds, and calculating a variety of ratios. Such a system naturally offers a number of advantages. Once the model has been developed, the tedium of manual computations is eliminated with the help of business finance software. The circularity problem is easily tackled as the computer can quickly perform the required iterations. Finally, business finance software can be employed very conveniently to perform sensitivity analysis.

Thanks to the above advantages, the computerized financial planning system strengthens the firm's planning ability. However, there is a potential disadvantage associated with it that may be overlooked. The ease that computations can be performed with the help of business finance software and forecasts generated may result in misdirected efforts. A large quantity of low-quality predictions may be churned out creating confusion and on the part of management. Quality may be sacrificed to quantity. To guard against this danger, greater thought should be given to the scenarios evaluated and the quality of analysis when using business finance software.

With electronic data processing, it is possible to handle large amounts of data and to make information available to a large number of people. Thus, one can obtain, analyze and organize timely data quite inexpensively by using business finance software. But it must never be forgotten that data is not necessarily information. Information must inform someone. With the help of business finance software, you can use computer graphics. It can inform visually, displaying important company information. Managers can now quickly display a colored map showing their competitive picture instead of computer printouts for information.

Small Business Finance

Every organization regardless of its size and mission may be viewed as a financial entity. Management of an organization, particularly a business firm, is confronted with issues and decisions that have important financial implications. Questions must be answered like:

o What kind of plant and machinery should the firm buy?

o How should the firm raise finances?

o How much should the firm invest in inventories?

o What should the firm's credit policy be?

o How should the firm gauge and monitor its financial performance?

Business finance is broadly concerned with the acquisition and use of funds by a business firm. Its scope may be defined in terms of the following questions: How large should the firm be and how fast should it grow? What should be the composition of the firm's assets? What should be the mix of the firm's financing? How should the firm analyze, plan and control its financial affairs?

In general, business finance rests on the premise that the objective of the firm should be to maximize the value of firm to its equity shareholders. What is the justification for this objective? It appears to provide a rational guide for business decision-making and promote efficient allocation of resources in the economic system. Savings are allocated primarily on the basis of expected return and risk and the market value of a firm's equity stock reflects the risk-return trade-off of investors in the market place.

Hence when a firm maximizes the market value of its equity stock, it ensures that its decisions are consistent with the risk-return preferences of investors. This suggests that it allocates resources optimally. If a firm does not pursue the goal of shareholder wealth maximization, it implies that its actions result in sub-optimal allocation of resources. This in turn leads to inadequate capital formation and lower rate of economic growth.

Business Finance Degree

Knowing the differences in managerial practices in different countries is interesting. There are, for example, great differences among mangers in the United States as opposed to other countries. With the increasing investment of foreign firms in the United States, the syllabus of business finance is giving more attention to the integration of managers and workers from other countries into American society. This need is highlighted in that the number of inters company transferees has more than tripled from the late 1970's. The Japanese, for example, often find it difficult to be outspoken and direct in interactions with their colleagues and superiors. People from Arabian countries usually find American teaching methods too impersonal. One can learn various approaches used by the managers to reduce culture shock. These include special programs about corporate life in the US, as well as instruction in English, books and movies and tax advice for newcomers.

International business finance is essential in the curriculum of a business finance degree. The study of international business finance focuses on the operation of international firms in host countries. It is concerned with managerial issues related to the flow of people, goods and money. The ultimate aim is to manage more effectively in situations that involve crossing national boundaries. The environmental factors that affect domestic firms usually are more critical for international corporations operating in foreign countries. Managers involved in international business finance are faced with many factors that are different from those of a domestically oriented firm. Managers have to interact with employees who have different educational and cultural backgrounds and value systems. They must also cope with different legal, political and economic factors. Thus, these environments influence the way managerial and enterprise functions are carried out.

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Article Submitted On: May 17, 2006

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