Definition of Terms:
(a) Business: A business may be defined as human activity directed towards acquiring wealth through buying and selling of goods.
(b) Capital: the money a business has on hand to carry out its operations and grow in the future. The value of a business capital would include everything it owns and all of its money.
(c) Cashflow: The amount of cash or cash equivalent that a company receives or gives out by way of payment to creditors.
(d) Debts: An amount of money that is owed.
(e) Equity: The stake of ownership, investors have in a business.
(f) Investment: An investment is an asset or item accrued to generate income.
(g) Liquid assets: Liquid assets refer to cash on hand, cash on bank deposit, and assets that can be quickly and easily converted to cash.
(h) Liquidity: This is the ease of converting financial assets into cash without resulting in a big loss in value.
(i) OTC(Over the counter): It’s a process by which stocks, bonds, and other financial instruments are traded directly between two parties instead of on a public stock market. Eg: New York Stock Exchange(NYSE).
(j) Retained earnings: The amount of profit a business has left after it pays all its direct costs, income taxes, and dividends to shareholders.
(k) SMEs ( Small and Medium-Sized Enterprises ): Are businesses that have a limited number of employees, assets, and profit. An SME is defined by the United Nations Educational Scientific and cultural organisation(UNESCO) as an enterprise employing up to 249 persons. It is divided into; micro (9 employees), small (10-49 employees), and medium (50-249employees) enterprises. Lower-income economies more frequently use 50 or 100 employees as a threshold for defining an SME.
(l)Working Capital: This is the capital that a business requires for its day-to-day operations. Efficient financial management brings in steady cash flow especially when it is compliant with business policies as this will aid the easy flow of business operations.
WHAT IS CORPORATE FINANCE?
Corporate finance is a branch of finance that deals with the funding, capital structure, planning, management, and allocation of financial resources within an organization to increase its financial value while balancing risk and profit.
WHY CORPORATE FINANCE?
1. Corporate finance helps to determine the kind of businesses to invest in by assessing the risk and return involved.
2. It gives an insight into options to explore for business funding and raising capital. For example, crowdfunding, Angel investors, Initial public offering(Ipo), loans from financial institutions etc.
3. It helps a business in adequate planning and how profits can be actualized to increase the value of higher financial returns.
4. In corporate finance a business can efficiently distribute financial resources within the organization.
5. Corporate finance aids in the management of a business structure to fulfill the objective of the business.
THE STRUCTURES OF CORPORATE FINANCE
The goal of corporate finance is to maximize the value of a business through the planning and implementation of resources while balancing risk and profitability. It achieves this through:
–Capital Investment: It is a process where the risks and returns in an investment proposal are analyzed, taking into account the short-term and long-term goals of the organization. The essence of this is to ensure that investments are geared toward profitable projects.
–Capital/Funding Structure:This explains the method of financing that is used by an organization to raise capital. The Capital structure of a business is crucial as this helps to maximize the value of a business. For example, funds can be raised for a business through equity, retained earnings, and debt financing. However, the two major sources of business funding are equity financing and debt financing.
Equity financing occurs when a business calls for investors through equity issuance getting itself listed on the stock exchange for example, through IPO or through over-the-counter trade. For example, crowdfunding and angel investors. However businesses are advised not to rely solely on equity financing as too much equity dilutes shareholders voting rights and reduces dividend share.
Debt financing is the financing of a business through obtaining loans from financial institutions or bond issuance. In instances, businesses fund their project only from debt there is a high risk of inability to repay. This would drive such business into liquidation.Thus, a balance is required by businesses in sourcing funds to carry out their project.
– Working Capital : This is the capital that a business requires for its day-to-day operations. Efficient financial management brings in steady cash flow especially when it is compliant with business policies as this will aid the easy flow of business operations.
– Dividend Distribution : It involves decisions by a business on how much profit to retain or distribute among its shareholders. Dividend distribution is however dependent on the policy set by the management of a business on how the profit that is made by them should be shared. Profit sharing will be dependent on the policy that is set by the management. Whether profit is to be paid regularly or on an irregular basis, where profits are sometimes reinvested back into the business without the business owners, receiving any return.
The goal of every business is to make a profit and corporate finance helps business owners achieve this goal by setting up a capital structure that is in line with the value of the business while acknowledging the long-term goal and short-term goals of the business and implementing efficient business decisions to create positive financial outcomes.
WHAT BUSINESS MANAGEMENT ENTAILS
A business should be a value-producing activity with aims and objectives that generates profit. A business can be owned by an individual, or it could be a partnership, a corporation or a limited liability company. The type of business ventured into will determine the structure of that business. Business management involves the steps that is taken in executing a business idea from the planning stage, implementation stage, organizing stage to the operation and control of the business to serve it’s long-term and short- term goals.
In Nigeria, SMEs are the most popular form of businesses and a major driver of the nation’s economy. The National Bureau of Statistics confirmed that small and medium scale enterprises (SMEs) in Nigeria have contributed to about 48% of the national GDP in the last five years. With a total number of about 17.4 million, they account for about 50% of industrial jobs and nearly 90% of the manufacturing sector, in terms of several enterprises.
The challenge most SMEs businesses face in Nigeria include but not limited to funding, bad policies, infrastructure, unstable business environment, lack of strategic planning, financial literacy, location, etc. Small and medium enterprises (SMEs) are considered one of the most important industries required by developed and most importantly, developing countries for sustainable economic development. SME’s enhances harnesses potential employment opportunities, improving local technology, output diversification and development of indigenous entrepreneurship. In order for businesses to thrive, they require an effective business management system as the major aim of businesses is for sustainability and profit.
The adoption of corporate finance in the execution of a business plan will facilitate the setting up of that business, the management of operations, guide investment decisions, attract investors, regulate profit distribution and the general growth of the business.e adoption of corporate finance as a tool for effective business management is the right strategy for the successful execution of a business. The principle of corporate finance is applicable to all types of businesses because every business involves strategic planning, organization, funding, control and proper management of that business to fulfill it’s aim and objectives. Adopting corporate finance will aid businesses as startups and other SMEs to source for funds, minimize the risks of unpaid debts, ensure the running of operations, the yield of profits as it fulfills the aims and objective of the business.
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