Corporate finance is a special division of finance that handles all activities related to financing, investment decisions, and capital structuring. It is majorly concerned with maximizing the overall shareholder value through short-term and long-term financial plans and the implementation of different strategies. All corporate finance activities range from capital investment decisions to details regarding investment banking.
If you’re just getting started in managing a corporation, it is important that you understand the basic truths about corporate finance. Here are the five facts you should know.
1. Growth is never optional
To remain profitable and offer value to its stakeholders, a company must be in a constant state of growth. During the period your corporation had no investors, you only had to worry about your employees and yourself. But things changes when various investors started entrusting your company with their resources.
Therefore, there is more to business success than just generating profits. Your company must expand its operations and acquire a larger market share every year. This will help it stay profitable over time, build more trust in your current investors, and attract new ones.
The secret to handling the investable corporate growth pain is to get your ducks in a row with the company’s offerings and current market share before you try to grow. For instance, sort all the problems you have with the human resource department, market strategy, quality control, and more. Establishing your company branches in other cities is good news. However, doing that before all aspects of your business get streamlined might lead to failure.
2. The significant role of acquisition and mergers
Some of the ways a company grows involve expansion of services, creation of new product offerings, and branching to foreign markets. But not all forms of corporate expansion are home-grown. That means you should always be on the lookout for profitable acquisition and merger opportunities to drive organizational growth.
Generally, acquiring another corporation can benefit your company in many ways. For instance, a corporation with product offerings and a business model like yours can bring in a global element to your brand. In this case, your company doesn’t have to break into the new market on its own.
Besides, an organization whose product offerings complement yours can add more market share seamlessly. You don’t need to invest thousands or millions of dollars in marketing to expand your market share. Acquisition or merger can help achieve that.
Well, the benefits of acquiring or merging with another company are enormous. But the entire process isn’t simple and straightforward. Many factors must come into play to ensure a successful merger. Therefore, you must compare the limitations and benefits of acquiring another organization or merging with a given firm, then make the right decision.
3. Sometimes, you must divest
Most people still think divestiture is a backward step for a company with sustained growth in mind. But considering that your long-term growth is your ultimate goal, divestiture can help you keep some things in perspective. Believe it or not, sometimes a line of operations should go away, either via sale to another entity or bankruptcy and closure.
Well, this process is just like pruning trees. And your company is just like a big tree that needs to be pruned at the right time. At one point, you may have to let go of an acquired firm if it seems to have no future or other profitable opportunities in your realm of responsibility seem to be taking up all your corporation’s resources and time.
Keep in mind that the best decision is the one that will result in sustained profitability for your organization and its stakeholders. If this means you must scale back on some ventures, so be it.
4. The analysis is a continuous process
It would be best if you never stopped analyzing. A successful company never stops growing and evolving. Periods of change alternate with period stability, and you and your finance experts must always keep up with the changing economy, corporate landscape, and trends in your primary line of business.
If you choose to keep an eye on the daily aspects of company operations, an expert must be in charge of analyzing situations and markets. This ensures your organization is well-prepared for both expected and unexpected changes.
5. Create a team of trusted advisors
No matter how experienced and dedicated you are, you can never do everything every time. Your company needs experts in the field of investments, capital management, insurance, and more. Remember, building a team of trusted advisors might take time, effort, and other resources, but the success of your corporation depends on teamwork.
Now you know that corporate finance extends beyond balance checkbooks and making timely bills payments. It involves managing multiple lines of operations for higher profitability, growth strategy, insurance, and more.