Apart from having an innovative idea, the other essential resource a business start-up needs is a financial investment. Finance is crucial because, without adequate capital, your business will pretty much go nowhere. Even if you gather enough investment to start a business, you will need to make wise financial decisions to ensure making the best use of the capital over the years. And this is why businesses essentially need a finance function.
The role of financial professionals in an entity is significant. And when it comes to blue-chip companies, it is all the more vital. Blue-chip companies are well-established organizations that have been in operation for years. These companies are financially sound and are known to weather economic downturns quite well just for this very reason.
But does this mean they do not require financial experts? Well, no. There are numerous reasons why blue-companies direly need finance professionals, and here we have listed a few of these reasons:
Managing Mergers And Acquisitions
Well-established firms are often on the look-out for opportunities to expand their business portfolio. Since they have a sound grounding, they are in a position to merge or acquire struggling businesses. Some businesses may have immense potential but may experience financing or business administration problems due to a lack of resources. In such a scenario, financially sound companies may find this an opportunity to buy into the struggling company.
Financial managers play a vital role in a merger or acquisition. First of all, they may be responsible for being attentive to all such opportunities in the industry. The top financial managers may also have the role of analyzing whether these potential acquiring or merging options will turn out fruitful or not. In such a case, the financial managers may have the duty to devise cost and revenue plans with alternative outcomes in mind for top management. It may help the business owners ascertaining whether the move may be beneficial or not.
Analyzing The Profitability Of Business Choices
Apart from their primary established products, blue-chip companies are always looking out to expand their product portfolio or present their work in a diversified market. Whatever the motive is, financial professionals can add significant input to these projects. Financial managers can dig into the costs involved, the success probability, the expected sales, etc., to chalk out a profitability analysis. These analyses are critical for decision making and are often required by the top management to decide whether to go forward with the plan. Since finance professionals are excellent with numbers, they can easily create viability reports relating to any proposed top management decisions.
Managing The Risks Involved In Business Operations
Functioning a business involves tackling numerous risks. These are related to business activities, investment decisions, the market, or the economy in general. Financial managers possess the technical knowledge and experience to mitigate or reduce these risks and maximize business returns. Risk management is a vast discipline, and financial managers can add immense value to this role. For example, they can predict if a ban in particular by the government may result in higher manufacturing costs of one of the company portfolio products. Consequently, the management may choose to look into alternative manufacturing ways just in time to avoid consequent price increases.
Structuring Loans And Borrowings
Large-scale organizations commonly have several loans and borrowings as a liability. Since vast amounts of investments are required, organizations may find it more feasible to borrow money for capital spending. However, what role does a financial manager have in loans and borrowings?
Deciding on what type of financing to take up is a critical decision. It is not a piece of cake and requires an extensive evaluation of the borrowing terms and assessing capital's underlying cost. An individual who does not have the appropriate knowledge may find it extremely difficult to make the right decisions. Moreover, borrowing and lending arrangements are different. Financial managers have the experience and ability to devise an accurate borrowing portfolio according to the business' risk threshold and investment needs.
Assisting The Auditors
Multinationals or large-scale national companies often have public share listings. Once your company goes public and invites shareholders to purchase stocks in your company, you must also start issuing company financial statements for public viewing. Furthermore, shareholders might also require the company to get these statements audited to guarantee that the numbers stated are correct and free of misrepresentation.
Generally, finance professionals are involved in the creation of financial statements. But what other roles they might have in publicly listed companies? Once auditors arrive, they may need the company staff's assistance in providing information, records, and other necessary data. Financial managers can help these auditors conduct a well-informed and thorough audit by providing them the information needed on time.
Conclusion
Finance is a critical function in an organization. Hence, financial managers play a leading role in effective business operations. They are responsible for forecasting, budgeting, investment decisions, and several other critical business tasks. When it comes to blue-chip companies, these roles are more profound since their choices are also more monumental. However, all-in-all, financial professionals in your business is imperative.
