Economics/Business

What is Corporate finance Role How to plan finances how to expert

Corporate finance plays a vital role in every business. Regardless of the size or type of business operations, all companies seek to optimize their corporate financing arm for optimal wealth distribution and return generation.

Every decision made in a business has financial implications, and any decision that involves the use of money is a corporate financial decision. Therefore, every company that wants to remain strong in the market and plans to grow needs to pay special attention to corporate planning and finances.

For you to better understand this concept, and apply corporate finance to your business as well, check out the article we prepared!

What is Corporate Finance?

Every company that plans to expand its business and remain strong in the market needs to have good financial planning and organization, that is, to have a good strategy to manage corporate finances.

This is because they are the ones who help in the moments of important decisions that may significantly impact the business.

Corporate finance involves all financial decisions made in a business and it is through them that it becomes possible to manage risks, in addition to increasing the company’s valuation.

It is important to note that this concept is not simply based on keeping accounts up to date and having cash control. The idea of ​​corporate finance is to adopt strategic measures, supported by pricing decisions and cost optimization, aiming at the success of the institution.

In addition, they should be applied to any business, regardless of size or sector. Small or medium-sized companies also need to know the importance of controlling their revenues.

Role of Corporate Finance

In this way, having control of your business capital is vital to manage your company’s Corporate Finances.

By gaining full control, awareness of the real financial situation of the business is gained. Also, know exactly how much you have in cash and the amounts that can be invested.

Having this type of resource management is essential for the efficient and rational use of available resources.

Not to mention that financial statements such as cash flow or Income Statement for the Year, can help you make decisions thinking about how the capital of your business will be used.

You will be able to identify, for example, if your business has unpaid debts, if your income is greater than your expenses or even if it is or is not the time to invest in a new project.

This information can be easily obtained with proper planning and organization, making it much easier to make a decision when needed.

In addition, other indicators that can also contribute to the preparation of your company’s corporate finances are:

Average ticket

Average value of sales made and which is found when the total revenue for a period, usually a month, is divided by the amount of sales.

fixed costs

Amounts that need to be paid regardless of the results obtained by the company, the sum of all fixed costs of your business. Having control of these costs is essential for good business management, since it is through them that you can measure the minimum volume of sales necessary to close the month in profit.

ROI (Return on Investment)

Indicator widely used in projects, because with it it is possible to measure the profit of an investment and thus analyze whether or not it was worth assigning value.

indebtedness level

It allows the manager to understand the volume of third-party capital used in operations, providing an insight into the risk of the business, after all, this is money that will need to be paid at some point.

How to plan finances

Planning is a vital function of corporate finance. Key aspects include how much funding is needed, how much money must be raised from outside sources, what sources are available to raise funds, and how the money can be used profitably. If the finances are well planned, it will be easy to run the business.

Once the amount of funding needed is decided, the next activity is fundraising. The various sources of funding for a business include:

  • Sale of products or services
  • Loans from financial institutions
  • Venture capitalist funds
  • bank loans
  • Issuance of debentures and shares
  • Commercial credit from suppliers
  • Location 
  • Grants from the government or other institutions

Regular monitoring of the use of company resources is an essential part of managing finances in a corporate business. As we mentioned earlier, increasing company value is a fundamental objective of corporate financing.

So ensuring optimal use of finance, preventing waste and misuse, and getting maximum return on investments is something the corporate finance team would need to focus on. This also involves risk management

Why is corporate funding so important?

There are numerous reasons why corporate funding is important. Based on financial statements such as cash flow or DRE (Income Statement for the Year), for example, managers can make their decisions on the way in which capital will be worked.

Other indicators that can be used in the preparation of corporate finances are:

Average ticket

It is the average value of sales made . It is found by dividing the total revenue for a period, usually monthly, by the amount of sales.

fixed costs

It is the sum of all the fixed costs of a company, that is, those amounts that need to be paid regardless of the results obtained. On top of them, it is possible to draw an overview of the minimum volume of sales to close in profit in the month. It is vital to have control over them for business management.

ROI

ROI is the acronym for “return on investment” and is widely used in projects. Thus, it is possible to measure the profit of an investment and analyze whether it was worth it or not.

indebtedness level

Another very common indicator is debt. It allows the manager to understand the volume of third-party capital used in operations. In this way, it allows an insight into the risk of the business, as this is money that will need to be paid at some point.

Apply to your company

As you can see, corporate finance is of fundamental importance for any company that wants to know its financial sector in depth and make decisions based on real situations.

However, having full control of finances requires a lot of discipline, time and knowledge of the area. And not every entrepreneur has that possibility, or the financial resources to set up an exclusive department to take care of corporate finances. This is where the possibility of outsourcing the financial management of the company arises with an accounting specialist in the area.

How can I become an expert in Corporate Finance

Knowing the importance of adopting indicators in the management of Corporate Finance, now understand how to start planning them in your business.

Planning is essential for the proper functioning of your company. If your finances are well planned, it will be much easier to manage your business.

The main thing is to understand how much funding will be needed. That is, how much money should be raised from external sources and which ones are available to raise funds. Also, how money can be used profitably.

Once identified, the next step is to raise funds to put the project into practice. Some funding sources you can consider are:

  • Sale of products or services
  • Loans from financial institutions
  • Venture capitalist funds
  • Bank loans
  • Issuance of debentures and shares
  • Commercial credit from suppliers
  • Location
  • Grants from the government or other institutions

It is also important to ensure regular monitoring of your company’s resources to ensure good management of corporate finances. After all, only then will you be able to avoid waste or misuse of resources and get the maximum return on your investments.

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