The financing strategy is based on the choice of sources (internal and external) of own and borrowed funds for business development. For example, if start-up companies (startups) attract third-party investors, the financing strategy is built on borrowed funds from external sources. Check the financing strategies for companies with different shares in the article below.
The Development and Implementation of the Financing Strategy
Thanks to the trend of globalization of markets and the rapid development of information exchange technologies, capital has achieved an unprecedented level of mobility, which allows investors to identify in the shortest possible time, and capital to move to where resources can be used most efficiently.
The need to reduce operating costs as the most important condition for the survival and growth of the company has been recognized by managers for a long time. Today it’s time to realize that the cost of capital is just as vital to the success of any business focused on long-term economic growth. Therefore, the unconditional attention of the company’s managers requires the development and implementation of a financing strategy, in which the central place is occupied by the problem of the optimal capital structure.
The financing strategy allows, by choosing sources of financing, to ensure the development of the company and achieve the strategic goals that the owners of the business set for the management. One of these goals in a market economy is to increase the company’s value for its shareholders by a certain point in development, so the problem of developing a financing strategy as a tool for managing the company’s value is relevant.
Varieties of Financing Strategies with Different Shares
Depending on the current position and development strategy of the company in the market, one of four financing strategies is applied:
- Rapid growth strategy.
The company’s free funds are invested in current assets: rawer materials are purchased, and the main production facilities are actively updated and repaired.
- Domestic financing strategy (the “ideal”).
Operating activities and current liabilities of the company are covered exclusively by borrowed funds. Such a strategy increases the number of free funds, allows you to actively raise salaries for staff, and invest in research and development.
- Equilibrium strategy.
The company’s fixed assets (production facilities, technologies) and fixed production costs are covered by long-term low-interest loans.
- Traditional strategy.
All expenses of the company are covered by long-term loans issued to owners at low-interest rates. This model is suitable for young companies entering the market with little capital and no established customer base.
Features of Choosing a Financing Strategy for Commercial Organizations
Among the main features of choosing financing strategies for companies with different shares are:
- Project approach in business management, basic concepts, phases, and stages of project management.
- Project management subsystems, interrelated management processes.
- Methodologies and standards for project management recognized certification systems.
- Organizational structures for project management. Roles needed by projects.
- Project initiation. The birth of projects in the company, the content, and the results of the stage.
- Project planning. The technique of preparing working meetings for team project planning. Planning approaches, models, and tools.
- A product approach to project planning.
Thus, in the process of choosing a financial strategy, it is necessary to achieve some optimal ratio of performance, availability (reliable storage and fault-tolerant access), and total cost of ownership. At the same time, the optimality criteria in each case are usually determined individually and can be revised during operation.