Strong PR, HR and Finance departments are critical for the success of any organization across the World. HR – for getting the best talent and retaining them; PR – for getting the word out about the benefits of working with or for our organization and Finance – for ensuring that there are funds for the first two to operate smoothly. Finance is the lifeblood or the oxygen that ensures that an organization lives and grows. Without adequate finance, any organization will shall have to face a lot of problems and may soon cease to exist.
Adequate handling of accounts, finances and resources is very very important for the success of any business. Many times a business actually does not face any business related problems, but they have a lot of problems related to finance due to inappropriate handling and incorrect investments that are made by the senior management.
A problem of cash flow is one major problem that all organizations have 24*7. Managing it effectively is what ensures that you survive and grow. In order to grow, one has to produce/ sell more goods & services. For manufacturing and asset heavy companies, the option is to either go in for contract manufacturing, .i.e. pay an independent manufacturer for manufacturing without investing in machinery, or invest in new machinery, or rent out another production facility for this purpose. The capital costs involved in the second option are very very high. Most of the times people may suggest going in for contract manufacturing as it will be cheaper, but in the longer run, it is a new factory that is required as you can control the cost of production. This is an important decision as the funds required may need to be borrowed and the cost of servicing that loan may be too much for the company. This may lead to a funds problem, thus putting the future of the company in jeopardy.
This is where smart corporate strategy may come into play. Instead of going in for a loan, debt or a stake sale; a CEO may instead take the decision of raising funds through other means. He may ask his production team to prioritize the manufacturing of goods that are in demand over the ones that are slow moving. This allows a company to divert funds to more important activities that will yield more cash in the short run. Another option that is popularly used is cost cutting. Thus, by saving funds from other activities, it may be possible to make funds available for the activities that you want to carry out, without taking on any debt or selling company shares.
Another strategy that is popular amongst corporates is to sell off the non core business assets. Piramal Enterprises is an apt example for this. They sold Piramal Healthcare to Abott Pharma as they did not believe that this was a core business area for them. This was a Billion Dollar business and yet they identified the core principles of the business and decided to stick with those businesses. This led to unlocking of funds for other business ventures that they were interested in, without taking on any debt or outside financing.
There are many more such strategies that one can learn from. These strategies are nothing but creative ways to save money and raise funds without the need to service debt. It is important to keep reading about reading and learning about Finance and accounting in order to know more about such options. One of the best ways to do this is at networking events where one can meet senior managements of companies. Another great option is to study short term courses that let you connect and interact with people who do this everyday. BSE Institute Ltd is an institute that offers a short term course on Corporate Finance and Strategy. It is also a great place to network as it is in the heart of the country’s financial capital, Mumbai.
Sometimes, companies restructure their businesses in order to sell a portion of their business –like one brand out of a bouquet of brands that they own. They spin this off as a separate company and sell it off to a competitor or anyone else. This helps them in two ways. The first is obvious, cash in hand!! The second is even better – they get to offload the debt taken to grow this brand! This is a smart move to reduce the debt that your company pays. If you have a decent brand, not only can you get to offload the debt, but you also get paid handsomely for it.
Another effective way of raising capital quickly is through favourable payment terms for vendors and customers. This is a strategy used by popular retailer D-Mart. They clear the payments of all their vendors in under 10 days. This is unheard of in organized retail, where vendors have to wait for 60 – 90 days for getting payments. These vendors then offer fantastic discounts to D-Mart for clearing their bills promptly. The same is applicable for customers. In a B2B business, if we offer a discount on our products against immediate payment, we can easily save on the bank overdrafts that we would have otherwise depended on.
Finance may be a subject that is all about numbers, but if you look at the options listed above, they are nothing but creative ideas of people who wanted a better way to finance and grow their dreams. Just like them, even you can achieve your dreams, if you believe in them and never give up!