An Insight into Business Finance and Small Business Financing
Business finance basically denotes the area of finance within which you deal with financial decision-making as a business enterprise or entrepreneur and also involves the tools and analysis in order to make these decisions.The key objective of business finance is to maximize business corporate value whilst also the financial risks of the firm are managed. In principle, it is though different from managerial finance which is related to making the financial decisions of firms, including the corporations; the primary concepts of business finance would be applicable to the financial concerns of all types of firms.
The discipline of business finance or small business finance can be further categorized into two types of decisions, namely, long-term decisions and short-terms decisions and techniques. Long-term decisions are basically capital investment decisions for which projects get investment, whether to finance this investment with debt or equity; also, whether and when to pay dividends to the shareholders.At the same time, short-term decisions can be collective grouped under the term ‘Working Capital Management.Working capital management studies the short-term balance of current assets as well as current liabilities. The main focus under this heading is on the management of cash, stock inventories and short-term borrowing and lending.For instance, credit terms to clients. The two terms business finance and corporate financier are both related to investment banking.An investment banks main objective is to analyze and evaluate the financial requirements of a company and thereby, raise the suitable kind of capital that suits the best to satisfy those financial requirements.
Small business financing requirements are met by one or more of four varied sources.It will generally take the owner (s) of the business to use their own capital before any of the others happen.
• Invest capital from yourself, family member or other formal investors, such as business shareholders.
• Small business finance in either of the varied financial product formats.
• Any proceeds from small business start-up grants or the kind.
• Business profits
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Major small business finance concepts
If you have the intention of using your raised funds for a long duration, such as for the purchase of property,then you must match your funding to a source that should last for the same duration, such as commercial mortgage.You must always aim to raise your finance sources in a balanced manner such that business finance products can be used in combination with providers to reduce risks and avoid any endangerment of the long-term viability of the business.Your business plan depicting your trading performance on current basis should be able to assist you in the determination of the funding amount you would require and where it should be used.
It is also imperative that you consider your financial forecasts and make a decision whether you hall be having enough resources or might be required to raise more. Always remember to build in a contingency to pave way for unexpected or unforeseen situations.
In case you decide to raise more short business finance, your business financial management should be executed properly.Start with planning for the future.This ensures that you have a control over things and that they are organized, whilst it also avoids any stress or loss of control in case the business faces difficulty.It is quite likely that your business is adequately financed. But there can be times when you might require small business finance.
Symptoms of less business liquidity and need for business finance
There can be five key growing symptoms of low business liquidity in your firm:
• When your bank balance is experiencing constant decline in the past few years
• When the number of days of collections from the customers start rising
• When you shall not be able to pay your vendors you owe on time.While few of them may stop delivering supplies to you until you make them the full payment, it will also cause bad operational problems to your business.For instance, it may happen that you are not able to pay for supplies required to fulfill orders.
• There can be acute situations where you are facing severe difficulties in paying your key creditors, like wage tax, sales tax or VAT on time.These creditors can be governments, who would not accept this, and this is where your business would be jeopardized.
• When you are unable to pay wages on time. There can also be a situation that a supplier issues a court order to close down your business.
• Your loss of control as an owner can also become a cause of loss to your business. If you are able to recognize either of the above symptoms, you must probe into the matter seriously and take immediate action.