Managing Financial Resources and Decisions (Essay Sample)

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Institution
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Managing Financial Resources and Decisions
Introduction
Financial resources are said to be the money that is available to a business for spending. It may be in the form of credit lines, cash or even liquid securities. When a business is new and has just been started, the business owner must secure enough financial resources to enable them to run their business smoothly and efficiently without getting any financial problems on the way. Efficient running of the business ensures great profits and therefore promotes success. The financial resources are assumed to be the funds mostly in cash that fill in the lack of funds in a business. This lack of funds is mostly caused by the difference in timing between a business or a company’s cash expenditure and its cash receipts that they obtain. Financial resources are most of the time from different investors such as shareholders and also debt holders. In return for the provision of financial support, the investors get compensation from the business or company. The compensation can be in form of dividends or even interests after a certain period of time. Most companies prefer selling their stock rather than taking loans from banks or even from individuals. This is because; stocks cannot be taken back by the company in exchange of the money offered for the stocks. Also, if the company collapses and all their assets liquidate, the share holders of the particular company’s shares cannot go after the company in the name of being creditors. The shareholders can only take what remains of the company or business once all the creditors and debt holders get what the company owes them. However, as wise as it may seem to prefer selling of shares rather than taking loans, most of the time, companies are usually in need of immediate money once they decide to sell the shares of the company. Especially in small businesses, it is difficult to sell shares in the stock market of an unknown or newly started business because the future of the business cannot be predicted. In the stock market, the shareholders are the ones who decide if a stock will go up or down in price and therefore, they are still the ones who will decide if a stock will be bought or not. Also, in both big and small businesses, it is difficult and time consuming to sell stocks if the company is in need of immediate funds. This is because selling the stocks is a really long process. First they must be decide on the price, go through the government finance officers to get the legal papers for selling the shares and then make it official in the stock market. Also, before people realize and analyze the new stock, it would take weeks or even months. Companies and businesses will always be in need of money to maybe start new projects or even invest in equipment that may help promote the success of a business. For example, a small company would see a great way to advertise their products on the internet and they would opt to create a website to market their products online. In the present day, most companies are turning to the internet since it is both cheap and efficient. However, although creation of websites or even affiliate marketing may be cost effective, the other ways such as using billboards or other multimedia services for advertising are seen to still be important. Not everyone can access the internet or even, not everyone is computer literate. Therefore, they prove to be important since nobody would need special skills to be able to see an advertisement on for example billboards. In fact, maybe most of the people who see the advertisement on the billboards and also other multi-media outputs such as televisions are your potential customers and not the ones who access the website of that particular business or company. Therefore, the small business owner would get a bigger return of investment rather than using the websites only. Therefore, the small business owner or the company would go for immediate funds in form of loans from people or maybe banks so that they are able to maintain the cost of putting on the billboards or even bringing their advertisements on televisions or on the radios. However, this would be taking a bigger risk because if the business unfortunately fails, the creditors and debt holders are allowed to go after the personal belongings of the owner or the owners of the company. This is why some businesses collapse and crumble to the ground because they unfortunately can’t pay their creditors. Therefore, it becomes very important to first assess some of the decisions made by the business owner on taking loans. Assessing the business and their ability to be successful becomes very important since it would sidestep certain problems such as bankruptcy.
In big companies, the loans are taken from people who have a lot of money or banks. The people with a lot of money who loan big companies money are said to be debt holders and are given certain papers known as bonds of an equivalent amount of Mooney they have loaned to the company. The bonds come in handy especially when a company collapses or goes into bankruptcy. Once all the assets of the company liquidate, the debt holders can cash their bonds and they are able to get their money back. They are also privileged because they are the company’s’ creditors at the moment so they can get their money back before the share holders of a company. The banks and debt holders also get to act as current owners and members of the company (Booth & Geoffrey, 1997). They are included in making important decisions and this helps them to ‘watch over’ their investment. They are allowed to vote for the company or business managers and are consulted on most of the issues in the company which involve a lot of money.
Most companies take these loans to invest in other areas or even to expand the same business. For example, an airline company can take a loan from a bank to increase the number of air planes in their company. This is seen as an effort to expand the company. However, these companies can never be given loans to pay their debts. With this large amount of funds this companies get from loans, their needs to be a very good and knowledgeable team that would help to manage the money and therefore avoiding the company from taking a nose dive and therefore leading to bankruptcy. This is because; a company’s first aim is paying off the loan that they had taken and later start enjoying the profits from the expanded business. Therefore, the loan becomes a priority before anything else that would require funds which are not really necessary such as awarding workers bonuses. (Booth & Geoffrey, 1997)
Loans however are not the major source of income of a company. The usual aim of a company or a business is to make enough profits to continue expanding the business. For example, the aim of a bank is to make enough profits to be able to open up more and more branches in multiple places to be able to attract many customers. The money that a business makes is known as the working capital which is the total amount of money a business or company makes from their business transactions. This is said to be the most important finance resource of a business because without making any profits or even getting a return of investment, a business will obviously collapse. The profits or even return of investment can only apply when all the expenses of a business are eliminated (Avery, 2003). The expenses may include workers wages, taxes or debts. A company’s financial resource that is obtained from working capital determines a lot of aspects in a company’s future. For example, a company that make huge amounts of profits will attract a very large number of investors who can give those loans and also, if the company decides to sell shares, they can sell them at high rates and the shares would still be bought by many investors. This is because, investors predict that the company’s future is really bright and therefore they would make a lot from the company. This would be the complete opposite from a company that makes little profits.
For a company to make profits there are a number of factors that determine the company making profits and also the amount of profits it would make. One of the most important aspects is the business orientation of the company or business. Business companies in the recent past have been seen to have great competition with each other. Every business comes up with their own strategies to increase competition. Therefore, companies that are not able to keep up with this competition are usually at the risk of extinction. The competition which a business is brings in the market is all dependent on the orientation of the business. Orientation of a business the major factor that businesses consider when coming up with ideas and strategies to increase competition. Therefore, there are two types of orientation in a business namely marketing orientation and societal orientation.
Marketing orientation is a business philosophy whereby a business focuses mainly on identifying and meeting the stated and hidden needs and wants of customer. It is said to be a coordinated marketing campaign between a company and its customers (Deshpandey & Farley 1996).
Societal orientation on the other hand is the business perspective whereby a company works on the best interests of the people in the society.
In the two definitions, it is clear that marketing orientation mainly focuses on the needs and wants of customers while whereas the societal orientation focuses on the well being of the consumer. Therefore, societal orientation is much more environment friendly. Both are ways to create competition for rival companies but however, they have different costs to incur when used.
Companies that need easy money and fa...