The world of corporate finance

Before the beginning of the 2008/2009 economic crisis, business owners’ main financial concern was the availability of lines of financing for their company’s daily needs (financing sales, purchases, ...). This was when it was easy to get a credit line.

After the beginning of the crisis, the situation changed completely, and getting credit became almost impossible.

So, what to do? How to address the company's needs? How to manage growth?

These questions address the effects of the problem—not the cause. Of course, responding to these problems is important, because financial difficulties are a threat that could jeopardize the very viability of a company, but we should see corporate finance from another point of view.

Corporate finances should be planned, just like the rest of the factors of a company (supply of materials, production, customer service, staffing needs). This is even truer when it is difficult to obtain financial resources.

Finance should be seen as part of the company’s activity and in relation to the activity of the rest of the areas of the company.

Let’s see an example: if we sell a large quantity of a product or service to a client who is in a difficult financial situation, when we review our income statement, we will see an excellent number; our balance sheet will make us think that everything is normal, and we are just waiting for the collection date. Perhaps we experience some cash-flow tension if we have to advance a certain amount to our suppliers, but in the short-term, we will be quite content. Corporate finances, seen in isolation, tell us nothing.

What would happen if our client could not pay us until they sold their product? This imbalance would cause us serious problems.

Let’s see another example:  Due to an error in rate preparation, we make an extraordinary sale (which represents 25% of our annual sales) at a loss. At first, we are very happy: as it is a rate mistake, we do not realize until the whole production cycle or service provision cycle finishes; now it is too late.

By then, nothing can be done to rectify the error. Our review of financial statements did not indicate that anything was amiss until the product/service was finished, invoiced, and charged.

Whether it is a problem of difficulties obtaining financing or problems with our clients, in Corporate Finance the key is to consider finances as a whole, in context. We should be able to “read” in our finances the effects of the decisions made in production, sales, purchases, or service provision.

Corporate finances are not a “world apart” from the rest of the company: they are intrinsically linked to the activity of the other areas of the company; they translate our actions into numbers. Their correct reading—keeping context in mind—allows us to anticipate our needs, foresee our difficulties, correct their effects, and anticipate problems.

At CEDEC, we know that treasury planning, preparation of the economic budget, control of budget fulfillment, management indicator trend analysis, management control, equity balance, financial analysis of the balance sheet...are all extraordinarily useful systems in Corporate Finance management.

But none of these elements is important in isolation; they are only important if they are framed within a specific moment, at a specific company, in a defined economic, geographical, and sectoral context... For this, they must be analyzed as another company element.

So, at CEDEC, we accompany business owners in seeing, analyzing, and understanding corporate finance and all its tools as a way to visualize and predict the results of their decisions. Furthermore, this allows for taking corrective measures that turn corporate finances into a valuable tool for business management.