This article discusses financial management in entrepreneurship.
Owning your own small business is becoming more and more popular, but you may need to know more about financial management.
The following are important financial management in entrepreneurship that every entrepreneur should keep in mind all the time.
1. Financial control
Financially evaluating performance is another important role of the financial manager. The ROI (Return on Investment) is the overall measure of evolution.
Other financial control and evaluation methods include budget control, cost control, and internal audit as well as break-even analysis, and ratio analysis. Financial planning should also be a priority for the financial manager.
2. Disposal of profits or surplus
The entrepreneur must decide how much of the company’s profits should be kept for sale and how much should be distributed as dividends to shareholders.
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Factors that influence this decision include the company’s earnings history, the market value of the company’s shares, the need for funds to self-finance future programmers, and so on.
3. Determining capital structure
Once the capital needs have been identified, a decision must be made about the type and share of different sources of capital.
The entrepreneur must decide on the appropriate ratio of equity to debt and the ratio of short to long-term debt to equity to maximize shareholder value at the lowest possible cost of capital.
4. Choice of source of funds
Before the actual fundraising takes place, the entrepreneur must determine the sources of funding from which to raise funds.
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The entrepreneur can raise funds from equity shareholders, preference shareholders, debt-holders, investors, and other financial institutions’ public deposits, among others.
5. Estimating the amount of capital required
Business firms need capital for (a) the acquisition of fixed assets; (b) working capital needs; and (c) business modernization and growth. The financial manager estimates the amount of capital needed in the short and long term.
6. Procurement of funds
The entrepreneur takes action to raise the necessary capital for the business. This may involve negotiations with creditors, financial institutions, publication of prospectuses, etc.
The fundraising process depends not only on the cost of raising capital but also on factors such as general market conditions, selection of investors, government policies, etc.
7. Utilization of funds
The money raised by the entrepreneur is to be invested wisely in different assets to get the maximum return. When making investment decisions, management should follow three key principles: safety, profitability, and liquidity.
8. Management of cash
One of the most important tasks of a financial manager is to manage cash and other short-term assets. This involves predicting the inflow and outflow of cash so that there is no shortage or surplus of cash within your company. You need to have enough cash to buy materials, pay salaries, and cover your daily expenses.
Managing your business’s finances is a difficult yet rewarding task. The business environment is constantly evolving. Apply some of the above-mentioned financial tips.
Remember that you may encounter challenges along the way. Utilizing some of these tips will help you to overcome them. Most importantly: Financial management is an essential part of running your business. Make it your top priority.