Business finance is theraising, allocating, and managing funds companies need to conduct their business operations. These corporate enterprises can get the money they need from many different sources. These includeissuing equity shares, applying forcommercial loans, availing merchant cash advances,crowdfunding, andinvoice factoring.
Eric Dalius – business finance and how to manage them
According toEric Dalius finance is the lifeblood of companies. All the other critical areas of their businesses are dependent on a steady and constant cash flow. These are sales, marketing, human resources, logistics, customer relations, purchases, inventory procurement, production, and supply chain operations. Business finance’s primary goal is to apportion money into these areas to maximize the companies’ wealth.
Business finance comprises the following three critical areas:
1. Corporate finance
Corporate finance deals with properly planning, managing, and controlling funds companies have at their disposal. It includes cash flow management, in-depth analysis of financial statements, devising dividend policy, cash and capital budgeting. In small companies, the owners handle the financial operations of their businesses themselves. They monitor costs, expenses, income, and transactions with trading partners.
In the case of large public-trading companies, the Board of Directors approves all financial transactions. They scrutinize all the financial statements their accounting departments prepare according to the relevant statutory guidelines. The board members even assess the companies’ performance using various liquidity and solvency metrics.
Investments involve the companies making important decisions on which assets they use to invest to gain maximum returns.Corporate enterprises can choose to buy many different liquid assets in the financial markets. These generally include equity securities, bonds, derivatives, mutual funds, commodities, short-term U.S Treasury notes, and exchange-traded funds. Their objective is toearn enough after-tax dividends and interest to supplement their cash reserves.
To make sound investment decisions, companies need to havea sound knowledge of how financial markets work. They get to know when to buy these liquid assets and sell them at the right prices. Only then can they expect to maximize their returns. Moreover, the companies should be able to adapt to the pricefluctuations in the financial markets.
3. Financial risk Assessment
Risk assessment is the process of identifying, analyzing, and minimizingthe possible financial risks companies face. These hazards can arise when they prepare to make new investments or transact business dealings. It reveals how well these corporate enterprises’ finances canadapt tosudden changes in the market. These situationscan arise due to natural calamities, stiff competition from rivals, frauds,or changes in statutory requirements.
Companies should have enough funds to maintain a steady cash flow during seasonal downtimes and clear their liabilities. If the need arises, these corporate enterprises should convert liquid assets into cash to boost their finances.Otherwise, they could end up having a serious liquidity problem.
Companies need to ensure their business finances are to conduct their commercial activities smoothly. This can help them maintain a steady cash flow to pay off their liabilities and make investments. Corporate enterprises will also be better positioned to deal with sudden changes in their market environment with success.