Business and Financial Reviews
Any accountancy firm worth its salt can do a financial review of sorts. This would probably focus on the profit and loss account, or tax, and how you can thereby save money. But the central focus of corporate finance is much more on the balance sheet. For example, an acquisition needs financing, either by debt or equity, or by both. Both need to be seen in the context of and integrated into the existing financial structure of the balance sheet.
A thorough financial review should ideally begin with a thorough business review. Every financial transaction is the consequence of a business decision. The business review starts with a review of strategy—especially the marketing strategy. It can go all the way through to the business processes and the systems that support them.
It’s rather too simplistic to think that corporate finance transactions result solely from a need such as raising more working capital, financing capital expenditure, saving tax, selling or passing the business on, etc. Even if these are the circumstances that trigger a corporate finance transaction, each transaction should still be preceded by a thorough business and balance sheet review to see how it fits into the whole and ensure that the overall goal of maximizing the return on the balance sheet at a managed level of risk can be achieved.
Corporate Finance in a Credit Crunch
Credit shortages and squeezes are not unusual; they typically follow a credit “bubble,” where credit has grown so fast that it necessitates an economic readjustment. More importantly, the recent credit crunch has actually been a liquidity shortage. Funds have been scarce and the cost of borrowing has gone higher because the banks could not raise sufficient, or even any, longer-term funds to lend to business.
The smaller the enterprise, the harder it is to raise sufficient funds and the higher the likely cost. It’s hard enough that the economic slowdown has squeezed financial performance. Being unable to find additional funds readily when they are most needed can all too often lead to business failure. It’s not lack of capital but lack of cash that busts businesses. So creativity in corporate finance becomes even more important.
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