Business Financial Strategy


Financial strategy examines the financial implications of corporate and business-level strategic options and identifies the best financial course of action. It can also provide competitive advantage through a lower cost of funds and a flexible ability to raise capital to support a business strategy. Financial strategy usually attempts to maximize the financial value of the firm.

The trade-off between advancing the desired debt-to-equity ratio and relying on internal long-term financing via cash flow is a key issue in financial strategy. Many small and medium-sized companies try to avoid all external sources of funds in order to avoid outside entanglements and to keep control of the company within the family. Many believe that only by financing through long-term debt can a corporation use financial leverage to boost earnings per share, thus raising stock price and the overall value of the company. Higher debt levels not only deter takeover by other firms (by making the company less attractive), but also leads to improved productivity and improved cash flows by forcing management to focus on core businesses.

A very popular financial strategy is the leveraged buy out—a company is acquired in a transaction financed largely by debt—usually obtained from a third party, such as an insurance company or an investment banker. Ultimately the debt is paid with money generated from the acquired company’s operations or by sales of its assets. The acquired company, in effect, pays for its own acquisition. Management of the leveraged buy out is then under tremendous pressure to keep the highly leveraged company profitable. Unfortunately the huge amount of debt on the acquired company’s books may actually cause its eventual decline by focusing management’s attention on short-term matters.

My Consultancy–Asif J. Mir - Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

Financing Alternatives


By the time your company reaches its first stage of development, it has probably consumed most, if not all, of its original seed capital. Although business may be looking up, sales are not generating enough free cash to buy the inventory needed for further growth. And, of course, the amount of cash you have taken out of the business for personal living expenses has probably been negligible.

Except in very rare circumstances, a new business needs about three years of steady growth before it generates free cash in sufficient amounts to survive. Working capital to keep the business growing must come from outside the company. Financing must be obtained from banks, other leading institutions, or investors, or the company will stagnate and quickly die.

My Consultancy–Asif J. Mir - Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

Manage Details


When you have an idea you want to remember, stop what you’re doing and write it down. Don’t write it on a business card or the back of an old envelop, but in your time and priority management binder, which will become a trusted memory bank. In your alphabetical phone index, keep separate sheets for each of the people you frequently deal with (such as clients, buyers, colleagues, accountants, doctors) over the course of a year. Every time you have an idea that should be mentioned the next time you encounter the person, write it down on that person’s page. Then instead of worrying that you’ll forget, you can simply refer to the sheet next time you talk to the person face to face or on the phone.

My Consultancy–Asif J. Mir - Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

Foreign Exchange


An international marketer needs to transact financial transfers across nation lines in order to close deals. The financial transfers from one country to another are made through the medium of foreign exchange.

Foreign exchange is the monetary mechanism by which transactions involving two or more currencies take place. Transacting foreign exchange deals presents two problems. First, each country has its own methods and procedures for effecting foreign exchanges—usually developed by its central bank. The transactions themselves take place through the banking system. Thus, both the methods and procedures of the central bank and commercial banking constraints must be thoroughly understood and followed to compete a foreign exchange transaction.

The second problem involves the fluctuation of  the rates of exchange. Fluctuations in exchange rates are based on the supply and demand of different currencies. The rate of exchange between two countries can fluctuate from day to day. This produces a great deal of uncertainty since a business person cannot know the exact value of foreign obligations and claims.

To appreciate fully the complexities of foreign exchange, a few terms must be understood. Their understanding also will provide a historical perspective on the making of payments across national boundaries. The terms are gold standard, gold exchange standard, gold bullion standard, inconvertible currencies, and hard and soft currencies.

My Consultancy–Asif J. Mir - Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

Advertising: Media Reach and Frequency


When advertisers discuss media, they talk of reach and frequency. Reach refers to the number of people who will be exposed to the message. Frequency refers to the number of times each person will be exposed. Although in some endeavors you should strive for reach, in most, frequency will help you even more. Remember, familiarity breeds confidence, and confidence serves as the springboard to sales.

Select a marketing method. Before you select any method of reaching the people you wish to reach, think these thoughts. It is not necessary to say everything to everybody, nor is it possible. If you try to say everything to everybody, you’ll end up saying everything to nobody or nothing to everybody. Instead, you should try you should strive to say everything to everybody. Your marketing message is the “something.” Your target audience is the “somebody.” Just as you take care in selecting what you will say, you should take equal care in selecting to whom it will be said. Saying the right thing to the wrong people is not acceptable. Advertising on television does wonders for your ego, but if your prospective customers don’t watch much television, it is folly.

Whether you utilize the method properly yourself, and whether you can afford it. When you combine two marketing methods with two other marketing methods, the total is more than two plus two. A synergistic effect is created whereby two plus two starts to equal five and six and seven. And when you combine five marketing methods with five others, your possibilities for success are increased many fold. The more methods of marketing you employ, and the greater your skill at employing and selecting them, the larger the size of your bank balance.

My Consultancy–Asif J. Mir - Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

Disadvantages of Sole Proprietorship


What may be seen as an advantage by one person may turn out to be a disadvantage to another. The goals and talents of the individual owner are the deciding factors. For profitable businesses managed by capable owners, many of the following factors do not cause problems. On the other hand, proprietors starting out with little management experience and little money are likely to encounter many of the disadvantages.

  1. Unlimited Liability: The sole proprietor has unlimited liability in meeting the debts of the business. In other words, if the business cannot pay its creditors, the owner may be forced to use personal, non-business holdings such as a car or a home to pay off the debts. The more wealth an individual has, the greater is the advantage of unlimited liability.
  2. Limited Sources of Funds: Among the relatively few sources of money available to the sole proprietorship are a bank, friends, family, or his or her own funds. The owner’s personal financial condition, then, determines his or her credit standing. Often the only way a sole proprietor can borrow for business purposes is to pledge a car, a house, or other real estate, or other personal assets to guarantee the loan. And if the business fails, the owner may lose the personal assets as well as the business. Publically owned corporations, in contrast, can not only obtain funds from commercial banks but can sell stocks and bonds to the public to raise money. If a public company goes out of business, the owners do not lose personal assets.
  3. Limited Skills: The role proprietor must be able to perform many functions and possess skills in diverse fields such as management, marketing, finance, accounting, bookkeeping, and personnel. Although the owner can rely on specialized professionals to provide advice, he or she must make the final decision in each of these areas.
  4. Lack of Continuity: The life expectancy of a sole proprietorship is directly related to that of the owner and his or her ability to work. The serious illness of the owner could result in failure if competent help cannot be found.
  5. Lack of qualified Employees: It is usually difficult for a small sole proprietorship to match the wages and benefits offered by a large competing corporation because the proprietorship’s level of profits may not be as high. In addition, there is little room for advancement within a sole proprietorship, so the owner may have difficulty attracting and retaining qualified employees.
  6. Taxation: Although it is considered that taxation is an advantage for sole proprietorships, it can also be a disadvantage, depending on the proprietor’s income. Under current tax rates, sole proprietors pay a higher marginal tax rate than do small corporations. The tax often determines whether a sole proprietor chooses to incorporate his or her business.

My Consultancy–Asif J. Mir - Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

Learning Organizations are Fun


Many organizations, even in this day and age, still hate hearing bad news. This is driven by their attitude to learning: at heart, organizations are either learning organizations or they are not. Those that are not learning organizations genuinely hate bad news. They shoot messengers and prefer to bury their head in the sand till they get kicked out of their complacency and forced to act. Fortunately (or not) for some of them, they have enough credit in the bank to get kicked quite a few times before eventually they receive one kick too many and are pushed over the edge. Learning organizations, however, are fun to work in and attract talent.

My Consultancy–Asif J. Mir - Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

Value Chain Analysis


The term value chain describes a way of looking at a business as a chain of activities that transform inputs into outputs that customers value. Customer value derives from three basic sources: activities that differentiate the product, activities that lower its cost, and activities that meet the customer’s need quickly. Value chain analysis (VAC) attempts to understand how a business creates customer value by examining the contributions of different activities within the business to that value.

VCA takes a process point of view: it divides (sometimes called disaggregates) the business into sets of activities that occur within the business, starting with the inputs a firm receives and finishing with the firm’s products (or services) and after-sales service to customers. VCA attempts to look at its costs across the series of activities the business performs to determine where low-cost advantages or cost disadvantages exist. It looks at the attributes of each of these different activities to determine in what ways each activity that occurs between purchasing inputs and after-sales service helps differentiate the company’s products and services. Proponents of VCA believe it allows managers to better identify their firm’s strengths and weaknesses by looking at the business as a process—a chain of activities—of what actually happens in the business rather than simply looking at it based on arbitrary organizational dividing lines or historical accounting protocol.

Judgment is required across individual firms and different industries because what may be seen as a support activity in one firm or industry may be a primary activity in another. Computer operations might typically be seen as infrastructure support, for example, but may be seen as a primary activity in airlines, newspapers, or banks.

My Consultancy–Asif J. Mir - Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

Selecting your Foreign Agent


  1. Your agent should be a national of the country where you aim to do business and should have experience in your industry or product line.
  2. The agent should not be involved with a competing company or product, but could be representing a complimentary line.
  3. Do your own checking of references. Have your banker check your agent’s bank references.
  4. Where credit is an issue, get a credit report from a local credit agency.
  5. Check at least five or six of the agent’s references: clients, customers or other business contacts relevant to your business.
  6. Visit your prospective agent in the foreign country and ask to come along on customer calls. Watch carefully how clients, secretaries, and purchasing agents respond to the agent.
  7. Since the personal relationship is so important in business abroad, the contact person must be someone who can negotiate for your company and who has authority to sign a contract on the spot.
  8. Make sure responsibilities are clear. The agent is typically responsible for promoting your interests and products, but it is no standard procedure as to who pays for what. For example, the agent can design local advertising campaign and pay for it, or bill you, or, conversely, you must provide advertising.
  9. If possible, make the written contract with your agent short-term and nonexclusive so that you have a safety valve. However, it is essential for you to treat it as an exclusive arrangement and to establish a strong mutual long-term commitment. Many agents will not consider a contract that is not exclusive or that does not continue for several years.
  10. Consult a local attorney before making any commitment to a national. It is difficult to get out of an agent agreement, so terms of termination and other “outs” should be established in the beginning. Agency laws in foreign countries are changing rapidly and legal problems arising from small mistakes can put you out of the market permanently

My Consultancy–Asif J. Mir - Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

Previous Older Entries

Follow

Get every new post delivered to your Inbox.

Join 45 other followers