Corporate finance can play a significant role in the success of a business. This is chiefly because it’s involved in a variety of different aspects of your company. Many people may wonder what business finance is; this can be quite a legitimate question, as it can be such a broad-reaching term.
While these functions may be performed by a limited group of people, possibly no more than one or two, these roles can become somewhat more specialized as the company grows larger. Regardless of size, however, there are eight fundamentals to corporate finance.
Not every company has the finances needed to grow, especially if they’re undergoing rapid expansion. While many would consider the likes of a loan to pay for this, there’s a variety of different ways to finance this. This can include the likes of investors, public trading, and much more.
A professional working in corporate finance will look after this funding while ensuring that these funding sources are as beneficial as possible for the company while providing a minimal amount of drawbacks. For example, business funding can often prove vital when expanding your business.
Tax & Compliance
Running a business means paying tax, as well as a variety of other financial obligations. One of the most notable aspects of this is keeping documentation and filling out forms regularly. This can often be complex and detailed, which can confuse many who aren’t familiar with the process. However, it’s also an area that a corporate finance specialist will be more than familiar with. This also extends to reducing tax obligations while ensuring compliance when it comes to any financial regulations.
Every business needs to plan for the future. One of the primary aspects behind this is making financial forecasts. The function, known as Financial Planning & Analysis, will forecast earnings for the future while also comparing previous predictions to results.
This will allow them to better plan ahead and point out where businesses can improve. Corporate finance departments will also run through many scenarios, such as the loss of a large client or potential regulatory changes, to prepare strategies should these occur.
Many businesses can operate with a high degree of financial debt or leverage. This is especially true with financial institutions, which means that there can be a significant amount of risks involved. A risk management function helps to quantify these risks, such as interest rates, currency fluctuations, and much more. This will allow a company to mitigate these risks and minimize them as much as possible.
Corporate Development & Strategy
This is somewhat of a broadly defined area. However, it’s an area that’s most widely populated by the likes of management consultants and former investment bankers, which can provide a window into the tasks that are performed here.
These normally include raising debt and equity financing, analyzing mergers & acquisitions deals, and much more. Many of these can be advantageous when it comes to entering new markets, as well as in a few other core business decisions.
Financial Reporting & Control
This is the process of taking accounting entries and turning them into financial statements that a business will be able to use. This can help inform a variety of different strategies and include several different aspects. Some of the more notable of these include designing financial processes, with external auditors, and much more. These obviously go above and beyond what a typical bookkeeper will do. They can also benefit your business in the likes of accounting practices and much more.
Bookkeeping & Payables/Receivables
Bookkeeping is one of the more basic aspects of running a business. This can be a task that’s undertaken by a few different professionals, be it a bookkeeper or a CFO. As a business grows, there can be a variety of more specialized areas to look after, such as the likes of corresponding with vendors and suppliers, which can go much further than simply recording transactions. This will encourage more specialized roles that form the basis of a corporate finance department.
Treasury & Working Capital Management
A company’s treasury focuses solely on ensuring that a business doesn’t run out of money. Much of this involves forecasting the finance that the company will need in the short-term while looking to generate medium to long term interest income. Some of the more notable aspects that a treasury will look after include receivables, payables, and inventory needs. A company will naturally need to pay for these, which makes the function a vital aspect of the business.
Depending on the company and the niche that it operates in, a corporate finance team can look after a variety of other areas. However, many of these will be based on or related to, each of the above functions. When it comes to your company’s finance, there can be quite a considerable amount to look after. With the risks that can often be involved in running a business, a corporate finance specialist can often be crucial.
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