Financing is an essential element for establishing a new business, launching a new product or service, or expanding an existing business through internal growth or acquisition. For example, cash is necessary in order for a company to continue operations while awaiting payment from customers and anticipated increases in sales; expand the volume of sales of existing products through increased advertising and promotion; develop or acquire new technical skills and assets, including acquisitions of other firms; enter specified new markets, including new facilities and recruitment of personnel; create new products that address a specified market need, including research and development; replace or upgrade aging or obsolete facilities or equipment; or comply with regulatory requirements, such as health standards or environmental laws.
It is likely that entrepreneurs and managers will, regardless of the size of their businesses, need to venture into the world of finance several times over the life cycle of the enterprise. In that world they will encounter a wide range of participants, including banks, venture capitalists, investment bankers, government agencies, and business advisers, each of which will provide unique resources and experience. In addition, they will be exposed to the legal requirements and institutions of their own domestic “financial systems”, which are the processes that have emerged for channeling funds from agents with surpluses of capital to agents with capital deficits, as well as the requirements and institutions of financial systems in other countries where they might be seeking capital and/or otherwise conducting business.
Capital suppliers have become increasingly innovative in devising financing techniques that are tailored to their needs and the goals and objectives of the businesses they serve. However, before managers can begin the onerous process of securing funding, they must develop a careful plan for identifying the financial requirements of the business, the terms upon which the company hopes to secure the necessary funds, and the potential sources for the funding. Of course, this assumes that management has already developed a “plan” for the business, product, concept or service, and has developed an outline of all of the requirements for successfully completing the plan (i.e., capital resources, human resources, other assets, marketing strategies and tactics). In addition, in order to be effective in raising and managing their capital, managers must also develop and implement financing strategies supported by a wide variety of specific tools such as budgeting and forecasting and a strong internal finance department that is responsible for important core responsibilities and activities such as controllership, financial reporting, bank and investor relations, financial planning and analysis, treasury, tax reporting and compliance, internal controls, corporate development and participation in strategic initiatives such as mergers and acquisitions.
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