Financial resources in business
When people run their businesses, financial resources are required to start a business and additional financial resources to make a living. Furthermore, people need enough money to run and start a business. The first step to starting a business is considering how many financial resources are required. Because people need to know how much money they need to find an appropriate way to raise funds. And then the second step is that find out what purpose financial resources will be used. The purpose of financial resources is divided into short-term capital and long-term capital. Short-term capital consists mainly of operating funds, and long-term prosperity is utilized to expand the business. So, raising funds and fund planning is essential.
There are different methods of raising financial resources that can use in own business.
- Angel investment
There is no separate definition for an angel investor, but most angel investors are accredited, investors. Angel investors are usually one-person investors. They can get some ownership equity when they invest in a project or company. So, furthermore, the angel was named because Angel investors provide to start-ups and venture companies in need of funds. Companies or start-ups must be careful because some
management rights are taken away. - Venture capital
Venture capital is an appropriate method of raising funds for venture companies or small companies rather than start-ups, which evaluates a company’s sustainability and expansion lines in perspective on whether to invest. But the downside of venture capital is that they want to withdraw their investment in 3 to 5 years. Therefore, venture capitalists would not be
interested in companies with products or services that take a long time to compete. - Funding from business incubators and accelerator
A business incubator is an institution that provides offices and factories for the preparation of starts- ups. If companies grow enough from a business incubator, companies must have to come out independently. If you use a business incubator, there are many advantages, and the first is that it is less risky with various support such as technical training and financial support. The second is that it contributes to the development of the community from a community perspective.
- Raise money through bank loans
Usually, when people need money to run their own business, they go to banks to loan money. Borrowing money from a bank is the easiest way to lend money. You need to know your credit rating to loan money from the bank. Depending on your credit rating, the amount of money you can make a loan will vary. If you loan a large amount of money, your credit rating will have to be high. If you are lending a large amount of money for business, you should present your business plan and credit rating. The business plan must be included contents such as the objectives and vision of the business, short or long-term financial forecasts, and the potential of the business plan. There are many restrictions on bank loans because there are legal regulations. Also, bank loans are not preferred by many people. They should pay back interest from the amount they borrow to the bank because they have an interest.
Importance of financial planning
Financial planning measures the necessary capital to invest in a new project and operate a company.
- Clear company goals
The company sets the goal of business and tries new companies.
To be specific, the company sets a KPI for the goal of business every year, which checks the product/market suitability of current enterprise products or services. Furthermore, they also invest in new companies or product development to expand a business. So financial planning is an important task to achieve the goal. And the wen they set the goal higher than budget, the running business becomes very difficult. - Sensible cash flow management
Cash flow management is the management of determining the amount of income or expenditure to determine the acceptable payment amount and to find a way to maintain a normal range. - Smart budget allocation
Budget allocation is closely related to cash management and cost reduction. The amount of money for income or expenditure should be identified and how it should be spent. The company sets a burn rate every year. This requires the budget to be subdivided and the right amount invested in the project. In addition, it is beneficial to the company to invest in projects that are most likely to succeed and profitable by doing good analysis. So, budget allocation is essential.
- Necessary cost reductions
Financial planning requires not only identifying expenditures but also saving money. If we compare the cost spent on fiscal planning with the pace of growth, we can identify unnecessary or inflated costs if we refer to next year’s budget. Savings in spending quarterly or yearly means more efficient management of spending. Effective spending can significantly help manage capital. - Risk mitigation
When you do business, you can have many crises, one of which is financial difficulties. However, if you plan your finances well and prepare for economic challenges, you will be able to overcome the crisis well. When planning a financial plan, make room for business insurance costs or losses. In particular, the economic outlook should be analyzed well. The financial view should be thought of in both cases where it is easy to generate revenue and complex issues. To cope with the crisis well, we should think about dealing with it in advance. To be precise, having a variety of contingency plans to avoid risk always will enable the best response in case of a problem. - Crisis management
When dealing with a company crisis, the first thing to do is to review and re-establish the plan. The best way is to check the project, figure out where the problem occurred, and rebuild it. We must predict when the crisis will end and constantly look for measures to contain it to overcome the crisis. The situation may affect the business, but you can overcome it well without a significant problem if you deal with it well. Therefore, companies are developing new financial plans monthly or quarterly after making one-year financial plans to overcome the crisis. - Smooth fundraising
Investors check various information, such as financial statements, corporate projects, and images, and decide on investments. Let us think about how many investors will invest in companies with poor financial plans. There will be no investors to invest in companies with poor financial planning. You can get investment by looking at corporate projects or images, but it won’t be easy to get investment if your financial plan is not solid.
The information of different decision-makers
Stakeholders are people we know and care about, and we must answer to in business who will be impacted by our decisions. Decisions can result in anticipated consequences, or they can sometimes take us in a direction we never considered, affecting things we never imagined. A stakeholder is a person who has interests, direct or indirectly, in an enterprise. So, the Consideration of stakeholders is essential in business. Because different results come out depending on the decision of the stakeholder. Customers, employees, owners, investors, communities, and governments are stakeholders. Decision-makers have different information requirements for other decision makers. Therefore, the decision maker’s information or requirements should be identified. In addition, there is information to be provided to decision-makers: the ratio of activity and liquidity, the ratio of capital procurement, profitability, and performance.
Many adjustments may be needed to understand each other’s information and meet requirements to make crucial decisions. Managers must meet several decision-makers, including the government, suppliers, creditors, and employees.
Below are the various decision-makers to meet in management.
Customers
Companies exist to serve customers. Customers make purchases by evaluating the quality of their services or products. That is why companies should make efforts to satisfy their customers. The customer is a stakeholder because the customer is a person who affects the company.
Employees
Employees of a company earn income by working in a company. And then, each company provides different welfare or benefits for its employees. So, employees are stakeholders because they earn income from companies to make a living and profit from employees.
Investors
Investors get an individual return on capital after investing their money in companies. Investors can often make investments by buying stocks, often common stocks. All shareholders are essential stakeholders.
Suppliers and Vendor
Suppliers and vendors exist to sell products or services to enterprises and generate a profit. Furthermore, suppliers have a direct impact on the company. Supply problems affect the operation of the company. So, suppliers and vendors are a stakeholder.
Communities
Communities are the main stakeholders of the large enterprises located in them. Because businesses have a lot of influence on the community. When a company enters a city, there are many changes. Job creation, economic development, health, and safety can be problematic.
Governments
Everyone must pay taxes when they earn income from the company. Also taxed are goods or services sold by companies. Furthermore, the government’s economy-related legal finances are stakeholders because they can have a lot of impact on companies. Governments benefit from the Gross Domestic Product (GDP) that companies contribute.
The financial impact on financial statements
Financial impacts significantly affect financial statements, typically sales, owner capital, share issuance, dividend payments, expenses, borrowing, etc. Various factors affect financial statements. To be specific, sales significantly impact net profit by increasing revenue when sales are made. Sales reduce inventory and increase cash through sales. Thus, increasing sales positively affects an entity, such as its sales, shareholders’ evaluation, and performance. Furthermore, an increase in cash assets is one of the factors that has a good effect on financial statements. For example, the equity of the entity’s owner in the balance sheet is the entity’s capital. The total asset is equal to the unlimited liability minus the entire liability. If debt-ridden companies increase their cash assets, reduce receivables, and increase their cash, they will increase their investments. Therefore, many companies try to save money. If the debt is reduced and money is increased, the balance sheet and capital of the income statement will increase. Therefore, the capital of the company increases. In addition, stock issuance and dividend payments significantly impact financial statements.
When a company issues new shares or must pay dividends, it affects financial statements. Shareholders receive tips on corporate income statements, and if they give new shares and investors buy shares, the company’s capital will increase. One year after that, the company must pay dividends to shareholders
annually.
References
Blog https://www.managementstudyguide.com/financial-planning.htm
Investopedia Jason Fernando Feb 4, 2021
https://www.investopedia.com/terms/s/stakeholder.asp#:~:text=A%20stakeholder%20is%20a%20party,employees%2C%20customers%2C%20and%20suppliers.
