What is corporate financing? Explain the procurement method and the advantages and disadvantages of each

In ” What is the job of accounting ? What is the difference between finance and accounting? “, I explained the difference between accounting and finance. This time, I will explain about “financing”, which is one of the big jobs in finance.

Difference between accounting and finance

It’s easy, but let’s summarize the differences between accounting and finance.

Work that incorporates business activities such as accounting and receipt work, bookkeeping work, and tabulation work into numbers.

From the current financial situation of the financial company, plan actions that match the management strategy from a financial perspective.

As mentioned above, the point of finance is to raise funds, prepare budgets, and manage funds from a “future” perspective. If a company is thinking of investing in a large new business, think about how to secure funds from which financial institution and for how long.

However, in the case of small and medium-sized enterprises, the finance department does not exist and the accounting department or the officers themselves may take on that role.

Scenes where financing is required

There are many reasons why a company can raise money.

The most common case of raising funds is when installing equipment to start a new business. Producing new products requires the latest or different equipment (land, buildings, machinery, etc.) and requires a large amount of funding.

And you will need to raise funds to pay for the period when there is no deposit. Depending on the type of business, in the case of the construction industry, the period from construction to payment is long, and there is a possibility that funds will be exhausted during that period. Of course, you will have to pay for construction materials and labor costs even during the period until payment. To pay for it, you need to raise it as working capital.

In addition, as a means to purchase a large amount of goods and materials, it may be necessary to raise funds because the funds on hand are limited.

So, is there any way to secure the cash on hand other than raising these funds?

The first thing that comes to mind is delaying payments to suppliers. For example, you can use bills to extend the time to payment from two months to three months. This method is often used by major companies.

It is also to collect accounts receivable from customers at an early stage. To do this, you can also offer a condition that you will get a discount if you pay earlier than the normal payment date.

Both methods are practically possible ways to secure the cache. However, since the suppliers and customers of products are based on credit relationships, there are limits to how long payments can be extended and early collections can be made. If you want to secure your own operating funds without causing any external inconvenience, you need to raise funds.

Financing methods and their advantages and disadvantages

There are two ways to raise funds: investment and financing.

・ Investment

Investment is money that does not need to be repaid. Therefore, you can use the funds freely, but the investor will have the management right. And there is a need to return it as a dividend.

As a concrete method of investment, there is the investment of own funds at the time of starting a business. Of course, the investment of own funds is not borrowing, so there is no burden of interest rates, and the advantage is that there is a high degree of freedom. However, it has the disadvantage that the amount of funds is limited.

In addition, in the case of the method of having another company invest, there is no need for own funds and it is an advantage that funds can be secured, but there is a possibility that the investor has the management right and can not freely carry out management activities. I have.

・ Loans

Loans are money that needs to be repaid.

Borrowing from a bank is a common way to get a loan. For major companies such as so-called Mega Bank, there are many branches and it is easy to use. However, in the case of bank borrowing, the process of raising funds is difficult, and there is the disadvantage that interest rates will be incurred.

Also, in the case of a sole proprietorship, there is borrowing from relatives and acquaintances instead of banks. In this case, there is an advantage that it is easy to borrow, but there is a disadvantage that if you cannot repay the loan, you risk losing your credit.

So is there a way to raise money with minimal risk? If you are a SME, you should consider financing from Japan Finance Corporation or local governments (mainly unsecured and unguaranteed loans), and applying for various subsidies and subsidies is also an option.

Applying for subsidies and subsidies requires some know-how because the procedure is complicated and there are some conditions. It is a field that tax accountants and registered management consultants are good at, so it is a good idea to consult with them.

The benefits of subsidies and grants depend on the conditions, but you can apply before or after your founding. And, as with the case of receiving an investment, it becomes money that does not need to be repaid.

However, there is a demerit that you have to secure the funds up to that point because the application period for subsidies and subsidies is limited, and especially in the case of subsidies, it will be postpaid.

When it comes to investing and lending, I would like to touch on another opportunity.

Treasury requires high expertise and business understanding of other departments

So far, we’ve looked at financing jobs, but the skills that the finance department needs are the ability to make decisions about whether or not to raise money and how to do it (repayment estimation plan, analysis of the company’s financial situation, use of the funds to be raised). (Breakdown, whether it is feasible in the first place, etc.) and negotiations with financial institutions.

Coordination with the accounting department is essential to understand the current state of cash in a company, but there are various ways to raise funds, and which method is best depends on the state of the company. increase.

Judgment is required to consider whether it is necessary to procure in the first place, and if so, by what means, and for that purpose, it is necessary to be familiar with the profit plan of the new business and the financial situation of other departments. Hmm.

In addition, there are problems such as interest rates and collateral when receiving a loan from a financial institution, and submission of an application form / application form in the case of a subsidy, but it is logical and persuasive to receive a loan / investment under the most favorable conditions. Negotiations such as strength and communication ability are required.

Financing of small and medium-sized enterprises may be a modest task compared to large-scale financing such as issuance of shares and investment from venture capital, but it is rather important because it requires fine adjustment because it is small and medium-sized.

Total
0
Shares
Related Posts