Medinex Limited

MedinexLogo
Medinex-Ltd-Corporate-Finance

Why Corporate Financial Management matters for companies? 

By Medinex Team   |   Jun 2024

 

Financial management is the planning, organizing, directing and controlling of a company’s financial activities such as cash flow, procurement and use of funds.  In general, it involves applying management principles to financial resources to effectively manage your money and achieve your business goals. 

 

Every industry will rely heavily on efficient financial management because the importance of corporate financial management is clear: business owners need an expert to handle the financial aspects of running a company.  A good financial team will oversee the company’s accounting, staff, revenue, operations, and information technology – all while improving client service and lowering the cost of services.  Here is the low-down on the gist of financial management:

 

 

1.  WHAT IS CORPORATE FINANCIAL MANAGEMENT?

Your company’s finance is a critical and integral part of its existence as it is difficult for any organization to be sustainable without properly managing its finances.  Your finance team decides if a particular venture is viable and how much revenue is required to sustain your company.  As many such decisions are important, it is essential that you have a team of experienced financial experts to assist you in them.  

 

Some of the top financial challenges faced by small companies include the lack of cash flow management, lack of capital, insufficient knowledge pertaining to tax compliance and burdensome legal paperwork.  To remain financially viable amidst these challenges, you must strategize and address these issues by being aware of key cost drivers and identify potential solutions to achieve financial savings. 

 

2. BENEFITS OF FINANCIAL MANAGEMENT

The benefits of good financial management in the corporate sector extend beyond just financial matters toward various benefits for you and your customers:

 

Proper Cash Flow Management

Cash flow is the most reliable indication of financial health as it measures the amount of money coming in and going out of your company.  A finance team manages your accounts receivable balance to quickly increase your cash flow and implement proper cash flow management processes like quarterly cash flow statements.  By boosting cash flow, your company’s cash flow risk will decrease – cash-flow risk exists as a type of liquidity risk and is among the most important concerns for investors in private equity.  Therefore, good cash flow management is essential for your company to succeed, and having a cash flow statement will allow you to monitor your company’s growth.

 

Formulate a solid business plan and realistic budget

Whether your company is a new start-up or a mature one, the success of your company rests on your company’s budget plan.  A good budget guide will help you to actively manage your income and business expenses to achieve your long-term revenue goals.  Your budget should factor in both fixed and variable costs.  Fixed costs include your rent, utilities, manpower cost, accountant, and marketing fees.  Variable costs include costs-of-goods-sold, commissions and raw materials.

 

For any new start-up company, a business plan details the various costs such as equipment, manpower, and even bank loans:

 

Equipment costs

Every company requires some form of equipment and basic supplies like computers, information systems and software. You will need to decide whether or not to lease or buy certain equipment.  Depending on the type of equipment and terms of the lease, a viable option is to lease with the intention of buying only at a later date.

 

Manpower costs

As any company owner knows, one of the biggest costs is manpower, which can account for as much as 70% of total business costs.  Especially in Singapore, recruiting quality local staff can be very costly.  Even for companies that hire foreign labour, they are vulnerable to other risks.  For instance, many companies experienced labour shortages during the pandemic period when travel restrictions slowed the influx of foreign labour and many foreign workers in Singapore decided to return home.  A finance team assesses your business operations and strategize workforce planning to increase productivity and better utilise your human resources.  By recruiting the right staff and establishing performance measures that best meet your company’s needs, you will experience an increase in productivity and obtain quality staff at the lowest possible cost.

 

Business loans

There are many types of business loans available to companies in Singapore for whichever business needs you have. For instance, managing cash flow, furthering business growth, equipment and property loans.  There are also certain application criteria to be met when you are trying to secure a business loan.  A finance team will advise you based on your financial track record, business ownership and credit score.  Like any other loans, business loans are accompanied by interest payments and needs to be considered in your plan.  Having a business plan that is functional enough will allow you to repay the monthly repayments without digging into your own pocket.

Credits: Zoho Books

 

Tax Advisory & Compliance

Whether you are a sole proprietor, a partner or structured corporation, you are responsible for paying taxes on profits earned for the year. While keeping up to date with Singapore’s statutory and regulatory tax compliance requirements may not necessarily your core competency, you will still be penalized by the Inland Revenue Authority Singapore (IRAS) if tax payments are not made on time.   A finance team well-versed in the latest tax regulations will relieve you of this burden and prevent unwarranted penalties.  In fact, through proper management and monitoring of your expenses, some of these expenses can be used as deductions to significantly reduce your tax liability.

 

Achieve Long term growth

A key component of financial management is strategic planning for long-term growth through sound investments and the creation of new revenue streams.  According to the Organisation for Economic Co-operation and Development (OECD), the digital transformation which has been underway for decades is now accelerated by the COVID-19 pandemic.  Although some digital divides have narrowed, some have not followed the same pace and since have been left behind in the COVID-induced digital acceleration.  As data and information management becomes a critical component of privacy and digital security, the finance team will assess the necessary investment in these digital services.  A strategic financial management plan allows you to effectively track and analyze these expenses, create a long-term plan for financial success, and consider how to invest for future growth. Other tasks, such as budgeting, are necessary to ensure that sufficient funds are available to cover these expenses.

 

3.  HOW TO GROW YOUR COMPANY

All companies must expand their activities to grow.  However, there must be concrete statistics about where it is most beneficial to invest and improve revenue earnings.  This is a significant role of corporate financial management because a good finance team can help you identify areas that are worth investing in and can bring in good returns.  Although financial management is a difficult task, with a proper support system in place, your company can expect to grow in the coming years.

As revenue increases, you can think about buying out other businesses to expand your company or becoming a publicly listed company.  After a successful public listing, the proceeds from the Initial Public Offering (IPO) can be used to expand the business through mergers and acquisitions or to fund your working capital.  For this reason, a new generation of private practices is flourishing, turning to the financial markets to fund their growth.  The importance of financial management cannot be underestimated.  You can expect to see revenue growth with corresponding strategic operational measures, leading to increase in profitability.

 

4. DEVELOPING AN EXIT STRATEGY

For business owners entering retirement, developing an exit strategy and succession planning is an important consideration.  To take this burden off your shoulders, a financial management team can help you find a well-qualified successor who aligns with your company’s goals.

 

On the other hand, some companies are facing financial challenges due to revenue losses from border closures, declines in foreign customers, increased logistics costs, and higher manpower costs.  Given these challenges, the question is whether and how you should reduce your losses and sell off your business.

 

Regardless of why you are seeking an exit strategy, it always pays to know how to sell off your business when the time comes and, more importantly, at a lucrative price.  Good financial management has led many business owners to successfully find buyers at better prices.  More often, businesses and companies are simply not as profitable as they once were and need strategic planning to sell and achieve greater profitability.  

 

The Price-to-Earnings (P/E) ratio is a key element in valuing a company for sale.  Simply put, the P/E ratio is calculated by dividing the market price of your company’s stock by its earnings per share.  Companies that are in an early growth phase have a relatively high P/E ratio, which is an indicator of positive future performance.  So buyers have higher expectations for future earnings growth and are willing to pay more for it.  As your company matures and its growth rate declines, the relatively low P/E ratios are considered value stocks.  This is also a great bargain that would attract buyers because your company’s stock prices trade at a lower value relative to its dividends and earnings.  An experienced finance team will calculate your company’s P/E ratio and suggest a price that will allow you to sell quickly while maximizing your profitability.

 

Most importantly, selling your business requires an experienced finance team to build a solid foundation, perform due diligence, and act quickly.

 

ABOUT MEDINEX

In today’s complex environment, you need an experienced and dedicated finance team to help you grow your company and achieve your business goals within the shortest time possible. Whether you are a new or established business / company, Medinex is your one-stop source for support and guidance.

 

Our Business Consulting Services can help your company maintain financial operations that meet Singapore legal and regulatory requirements, invest in necessary data protection services, educate staff workers, and create new revenue streams by building brand equity and a corporate identity.  In addition, we also offer other corporate services including budget planning, negotiating contracts, and ensuring sufficient funds to cover expenses.  Through outsourcing of your company’s strategic financial management to Medinex, your staff can focus on providing what you are best at which is quality products and services.

 

Contact us today to discuss your financial management needs at:

 

Email:      contact@medinex.com.sg

Tel:           +65 8023 9505

Web:         www.medinex.com.sg

 

 

References

OECD Digital Economy Outlook 2020: En. OECD. (n.d.). Retrieved May 10, 2022, from https://www.oecd.org/digital/oecd-digital-economy-outlook-2020-bb167041-en.htm 

Table of Contents
× How can I help you?