business finance company

business finance company

Optimizing Business Finance Strategies for Company Growth

1. Introduction to Business Finance in the Corporate World

The purpose of this document is to analyze the various finance strategies in the corporate world, which will be external mostly, to guarantee operations and investments from medium to long term. Through six of the possible solutions that have not yet been achieved, strategies are developed to ensure the solvency of the company over time. A good combination of these strategies will be an important competitive advantage that will undoubtedly affect the good performance of the company. The ultimate goal of companies under the capitalist system is to maximize shareholder wealth, which is why observing objectives is typical of the business. This objective generates an essential requirement for companies in general, which is the creation of value.

The success of a business and its growth essentially go hand in hand. The financial health of a company needs to have the means to support that growth. In fact, many small and medium-sized enterprises resort to financing sources external to the business, such as bank loans, crowdsourcing, venture financing, and many others. This article talks about various finance strategies that companies can implement to leverage money to make still more profitable money. To ensure that the company will be solvent over time, it must design a sound financial strategy that allows for better business development.

2. Key Financial Metrics and Ratios for Company Performance Evaluation

Nevertheless, one essential ratio that we find useful in company performance evaluation is the “current ratio”, or the ratio of current assets to current liabilities, which provides an idea of the adequacy of the company in servicing its short-term obligations. And the “quick ratio”, or the ratio of (current assets – inventories) to liabilities, which provides an even stronger evidence of the company’s ability to cover its short-term obligations. The accounts receivable turnover ratio is a measure of the company’s effectiveness in taking credit sales and converting them into cash. Other important ratios, such as times interest earned, may serve as indicators of the safety margin of the company in being able to meet its interest payments for the debts that it owes, while the debt-asset ratio provides an analysis of the degree of financial leverage and the risk attached. These are just some of the common key financial metrics that a company should monitor and investors should scrutinize before making investment decisions.

Of course, by tampering with possibly the two most important finance areas for business analysis, we are in no way exhorting the importance of the income statement and the balance sheet, which are also critical in reviewing the historical and current performance and financial position of a company. It’s just that the function of the income statement and the balance sheet is to assist in deriving the two important areas mentioned.

The cash flow statement allows us to understand the ability of the company to generate cash, irrespective of accounting peculiarities. And the return on capital employed allows us to understand where the cash generated is coming from and whether or not it is sustainable.

Over the years at Delos Invest, I have come to realize that the two most important aspects of a company’s annual report are, firstly, the cash flow statement. Dividing the cash flow from operations against the operating profit can provide insights into accounting earnings that clearly do not reflect the true economic strength of the company. And secondly, the return on capital employed. This is because all other key numbers and ratios are directly or indirectly linked to the return on capital employed that a company is able to either earn or project to be able to earn.

3. Strategies for Effective Cash Flow Management and Working Capital Optimization

Dividends are discretionary, and stock prices are volatile, but worker salaries, utility bills, and loan interest must be paid on time (at least no more than a few days late) or else your business will have effectively run up the cost of these companies’ goods and services. If those are your customers, then it would seem that you and your customers have more in common than would at first meet the eye. If instead, you are one of their suppliers as well, then business survival becomes a top priority, too. Efficient movement of cash and cash flow management are critical. That is the rationale for having your financial manager who is focused on managing the company’s financial resource situation as carefully and strictly as your income and expense budgets. We are not saying that dramatic financial systems should necessarily be taken, but we are urging that they be seriously considered. The financial executive and the CFO can continually keep his CEO “on his toes,” or at least by first “asleep at the switch.” This is, of course, the purpose of good corporate governance. This is the essence of building a strong working relationship with your financial executive in the first place. After all, we should all be on “the same team” working towards “the same goals”. That is why the bottom line for corporate growth is a positive cash flow, making sure that that line is sustainable, and that it is optimally financed.

Most companies realize that proper current asset and current liability management is very important for day-to-day operations, quality growth, strategic planning, and even survival. Rapidly changing markets and economies affect every company’s financial stability and future growth, yet many companies tend to take their financial management systems for granted. World-class companies know that effective management of working capital is directly tied to success, which is why it’s so important. Never before has managing financial resources and sources of financing, both old and new, been more critical to economic survival. The goal of effective cash management is to balance the need for available cash and liquidity with the same need for cash flow.

4. Utilizing Debt and Equity Financing to Fuel Company Growth

The primary goals of a business financing effort should be clearly identified, then ranked in order of importance to the business. Most business owners understand the importance of clearly stating the objectives of a business, and this should also apply to business financing goals. This means that businesses should have a specific reason to apply for financing, such as purchasing machinery, purchasing adjacent real estate, or entering a new business area. General financing or working capital requirements are usually more effectively using alternative financing methods used by equity or debt choices. Then a business owner can specify which capital options are most likely to be most effective for specific objectives. This capability will result in business equilibrium more effectively considering debt and equity-based financing, and will help entrepreneurs determine where they will ultimately derive optimal benefits from the use of company financing.

Both equity and debt financing are necessary for optimal company growth. At the most basic level, equity financing comes from the business owner’s investment, or from venture capitalists or the stock market. On the other hand, debt financing comes from bank loans, bills payable, commercial paper programs, and leasing or factoring arrangements. It is important to consider the trade-offs of using the alternative financial resources. Each provides different financial and tax advantages and requires different ongoing efforts to support the funding. Both equity and debt financing are necessary to create a “tuned” business financing package, which effectively expands the company while avoiding possible business impairments caused by funding arrangement constraints.

5. Risk Management and Financial Planning for Long-Term Sustainability

From the perspective of the long view, you are striving to build a company that will be invested in and operated by your grandchildren and potentially your great-grandchildren. You want to preserve capital, but you are also looking for growth. Appropriate, well-structured, and effectively-understood financial planning can meet these multiple objectives, perhaps more effectively than stockpiling funds in a savings account. A historical review of business growth may remind you how confident and robustly led businesses became victims of their own overexpansion and poor planning. All key financial practice areas have some role to play in mitigating these strategic business risks, often under compelling market pressures. However, overriding corporate risk management still remains with the company’s owner and his corporate and financial advisors.

What you dream to create is both a legacy and a value-generating financial success. This is where your business and finance journeys intersect. Effective financial management will allow you to guide growth by providing the resources and methods to take action. This in itself is an exercise in corporate risk management. Building a long-term buyer journey involves making significant cash investment decisions. There can be both unexciting, safe opportunities that provide a reliable cash return and high-risk, high-return opportunities to spur growth. Being able to predict and position for these business and market risks is an essential element of financial planning.