August 31st, 2008
Planning finance involves what kind of finance should be used, where to obtain and when should it be available. The following tabulate some major factors that we should consider:-
The factors for consideration when planning finance or financial planning are as follows
- Cost– minimizing cost is a major financial objective hence the need to evaluate the different kinds of finance.
- Repayment date-important to understand when is repayment is due in relation to the matching of the timing of enterprise’s cash in-flows
- Collaterals-lenders would require the enterprise to give their assets as security. This sometimes involves restriction being placed on the use of the enterprise assets.
- Dilution of control-where increase in equity is concerned, it can means new shareholders will come in hence reducing the shareholding of existing shareholders and as a result their votes or control in the enterprise
- Risk– the project’s risk needs to be considered. The higher the risk the better to use equity. The need to be careful if equity to finance is not available. ( re: the enterprise could be highly geared)
- Availability of finance-depends very much in practice on what finance is available-a factor that can change from year to year.
- Liquidity– if an enterprise is extremely liquid it uses only short term financing. This will pose a risk to the enterprise,when there is low liquidity scenario in the financing market.