Business Financing and Capital Structure - Research Paper Example

This enables the determination of the basis of procurement; whether short or long term. ?Forecasting on the availability of funds: most organizations experience steady cash flow. The manager should forecast properly the amounts available to reduce the amount of money borrowed and save on interest payments. ?Establishment and maintenance of control system: proper control measures enhance determination of the adequacy of planning. The control measures facilitate effective utilization of funds. ?

Development of procedure: This involves establishment of the basic plans of how the financial planning process is achieved (Brav, 2009). Working capital management Working capital management involves the relationship between short term assets and corresponding short term liabilities of a firm. Working capital management aims at ensuring a firm is capable of satisfying the maturing short term debts as well as the upcoming operational expenses, and it involves managing the cash, amounts payable, amounts receivable and inventories (Brav, 2009).

Financial Instruments used as Marketable Securities Marketable securities refer to securities whose liquidation happens with ease. People often invest excess cash in different financial instruments at the highest quality rate. The financial instruments used as marketable securities include the treasury bills, notes and bonds, and stock. Bonds are normally issued by the federal agencies, local government and the state (Brav, 2009). Equity Financing In equity financing, the business shares profits with the angel investor or venture capitalist.

Some of the benefits of equity financing are that it is less risky because there is no payback. This is necessary when the person is unable to take the debt. Also, there is possibilities of tapping from the network of the investor, and thus enhances credibility of the business. In equity financing, there is a possibility of investors taking long-term view, with most of them expecting no returns on investments made. Furthermore, the business will not channel profits towards repayment of loans, and as a result, more cash is available to enhance business expansion (Brav, 2009).

The equity financing does not require payback of the investment in case of failure of the business. However, in cases of irreconcilable disagreements by investors, the person conducting the business may be compelled to cash in the business section and allow investors conduct the business without the owner. Debt Financing On the other hand, in debt financing, the person takes loan from the banks instead of investors. Some of the benefits of debt financing are that the lending institution is never interested in the reasons for carrying out the business and ownership of the business.

After paying the money, the business relationship ends. Also, loans can be short of long term, where the principal interest figures are well known, hence the budget can be easily planned (Brav, 2009). Benefits of Foreign Capital Foreign capital acts as the source of employment and enhances technological development through transfer of technology. The capital from other countries, especially the investors, is very rich. As a result, countries receiving foreign capital take advantage of superior management and research and development.

Also, foreign capital enhances growth, productivity and competitiveness in both imports and exports, and this improves the foreign investments. In overall, foreign