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.

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Factors of Production


Each business has its own mix of the four factors of production, vis-à-vis, natural resources, labor, capital, and entrepreneurship.

Natural resources refers to everything useful in its natural state as a productive input including agricultural land, building sites, forests, mineral deposits, and so on. Natural resources are basic resources required in any economic system.

Labor is critically important. It refers to everyone who works for a business, from the company president to the production manager, the sales representative, and the assembly line worker.

Capital is defined as the funds necessary to finance the operation of a business. These funds can be provided in the form of investments, profits, or loans. They are used to build factories, buy raw materials, hire workers, and so on.

Entrepreneurship is the taking of risks to set up and run a business. The entrepreneur is the risk taker in private enterprise system. In some situations the entrepreneur actively manages the business; in others this duty is handed over to a salaried manager.

All four factors of production must receive a financial return if they are to be used in a private enterprise system. These payments are in the form of rent, wages, interest, and profit. The specific factor payment received varies among industries, but all factors of production are required in some degree for all businesses.

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.

Promoting Sales


First stage marketing strategies should focus on sales promotions that will attract immediate customers and selling methods that will ensure repeat business. First stage companies can also benefit from sales and promotion activities, but with a focus on short term rather than long term benefits. Ideas include:

  1. Invite a local newspaper to write an article on some unique aspect of the company.
  2. Invite television reporters to cover a special event sponsored by the company (fund raising drive, a banquet honoring an employee, or the introduction of snappy new product).
  3. Start a charity book collection drive at local schools.
  4. Sponsor a young people’s athletic team.
  5. Sponsor a civic band or float in a local parade.
  6. Donate materials, space, or services to community theater groups.
  7. Sponsor a paper, glass, aluminum, or plastic recycling drive.
  8. Get behind a social cause.
  9. Donate used computers, office equipment, etc., to local schools, hospitals, or welfare agencies.

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.

Fringe Benefits


Fringe benefits are any benefits received by employees in addition to their regular pay. They include paid vacation, sick leave, welfare programs, and health and life insurance. The cost of fringe benefits is increasing much more rapidly than wages. One fringe benefit that unions have been stressing recently is the pension. Pension funds are certainly not small.

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.

Objective of a Supply Chain


The objective of every supply chain is to maximize the overall value generated. The value a supply chain generates is the difference between what the final product is worth to the customer and the effort the supply chain expands in filling the customer’s request, for most commercial supply chains, value will be strongly correlated with supply chain profitability, the difference between the revenue generated from the customer and the overall cost across the supply chain. Supply chain profitability  is the total profit to be shared across all supply chain stages. The higher the supply chain profitability, the more successful the supply chain. Supply chain success should be measured in terms of supply chain profitability and not in terms of the profits at an individual stage.

Having defined the success of a supply chain in terms of supply chain profitability, the next logical step is to look for sources of revenue and cost. For any supply chain, there is only one source of revenue: the customer. All flows of information, product, or funds generate cash within the supply chain. Thus, the appropriate management of these flows is a key to supply chain success. Supply chain management involves the management of  flows between and among stages in a supply chain to maximize total supply chain profitability.

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.

 

Managing Cash and Near Cash


Cash and near cash (interest-bearing assets easily converted to cash) are needed to conduct day-to-day business operations like paying employees and meeting emergencies. How much of these assets managers need depends on how well they have done their financial planning, how many other current assets the firm holds, and the range of normal business fluctuations.

Cash itself pays no interest. So the financial manager must be careful to (1) speed up collection of monies due; (2) conserve funds; and (3) place idle cash in interest-bearing assets (near cash) until it is needed.

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.

 

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