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.
|