Many factors go into the expansion and growth of your business. Some of them include expanding your market share, product features, figuring out new opportunities, advertising, etc. One of the most important determining factors in the growth of your corporate business is money, often referred to as finance in more formal words.
Finance is considered as the backbone of every business, be it small or large. What is most important to understand that where can businesses obtain monetary financing from, how can they use it, and what is its possible outcome. All of these questions will be answered below, so if these are aligned with your interests, stay tuned! Also, if you already have a business set-up or are thinking to start a new one, congratulations, you have landed at the right spot to get some, or all, of your queries, addressed.
SOURCES OF OBTAINING FINANCE
Before we go into the depth of how finance can help expand your business, we need to establish the main sources from where you can generate finance. The first one is by selling out shares. Both public and private limited companies sell out their shares in the stock market. You can earn a premium on the value of your shares which can also boost up your account.
Moreover, you can also obtain finance from external sponsors and donors willing to contribute to your company or business. Bank loans are a very common option these days as interest rates tend to go up and down, so when the cost of borrowing (interest rates) are down, it is the right time to take out some bank loans. You can also consider working with a commercial loan broker who can help your business in gaining loans. They will help you find interesting yet pocket-friendly ways!
ROLES AND USES OF FINANCE
1. EXPANSION OF CAPITAL
Almost every company uses capital equipment in their production process, which then again costs money to be acquired. With the help of additional finance, you can enhance existing capital and even add on to capital stocks. This can in return boost your productivity and hence lower your average cost of production, which can mean higher profits. If the Marginal Efficiency of Capital (MEC) exceeds the Marginal Product of Labor (MPL), it is in your favor to add more capital instead of hiring more workers, in this case, you can move to a capital-intensive moment of production. Companies more focused on technology will have a bigger advantage in this aspect. However, if we see it from a macroeconomic level, expansion of capital does come at the cost of unemployment, depending upon the respective Marginal efficiencies.
2. PRODUCT VARIATION
Finance plays an extremely important role in designing or launching a new product. Even the idea, planning, and Cost-Benefit Analysis and proposing a business plan require some sort of expenses. Hence, if you do have enough finances available, you can think to design a new product, add variations and new specifications to the existing ones or maybe just improve the overall performance of your existing services. If you happen to launch a new product, you will capture a portion of the market that you did not have before, increasing profits and revenue consequently.
3. IMPROVING CUSTOMER SERVICE
Customer satisfaction is one of the most important aspects of any business. By having more available financial resources, you can think to set up an additional customer service center, hire more people to answer calls of customers and manage emails for a quick response. You can also update your website and social media accounts regularly for people to know more about your products and services. This is a nice way to spread word of mouth as well because a satisfied customer will, in turn, inform 10 other people about your company which could be a way of indirect marketing. Remember, kindness and patience are key to any business!
Marketing is the way to outshine your product or service in the best possible way. It is the way by which a substantial amount of people get to know about your company. With the help of finance, you can boost the amount of advertising you are undertaking, hence increasing sales revenue and profits. While the function of finance remains both the control of outflow and inflow of money, it is important to understand that first the money will flow out of your bank account (advertising expenditure) and then will eventually flow back in (sales revenue and profits), expectedly in multiple amounts. Advertising can be done in numerous ways, most common ones are by billboards and posters on mass media.
THE FINAL WORD
The fact that financing is important for every company is supported by the existence of Chief Financial Officers and Financial Analysts or Managers in almost every company. This department needs people who are experienced enough to control the inflow and outflow of money. The operations department closely works with the finance department to ensure the growth of the company at every possible step. Monetary exchange is a crucial factor, both at a micro and macroeconomic level so it cannot be left alone. The role of finance is hence outlined by us above, but it is not just limited to the ones highlighted. Although these are the most important impacts, there are others too which could aid in the expansion of any business. Along with finance, other stuff comes along including business know-how, expertise, work ethic, and productivity of labor force, percentage of the market share of your respective company, the elasticity of demand of the product you sell and the respective average cost you incur in producing the product. To add on, markup and margin of profits are very crucial, so all of that coupled with the inflow and outflow of money form the base of any successful corporate organization!