Explore SME Financing Strategy

The general idea of financing for small and medium-sized enterprises

Modern financial management theory holds that the goal of enterprise financial management is to maximize the value of enterprises. After proving that the cost of capital reaches the lowest, the value of enterprises will reach the maximum. The basic formula is: total value of enterprises = expected earnings before tax, weighted average capital cost.

This is a major discovery.

Before that, the financial managers of the company put most of their energy into the investment decisions of enterprises. They believed that only when investment projects could make profits, the total value of enterprises could be increased.

Now, the financing activities of SMEs have direct connection with the financial management objectives of enterprises. As long as the financing cost is minimized, the maximization of enterprise value can be realized.

This directly led to the separation of thinking and investment decisions of SMEs in the financial management of modern enterprises.

In the financing of small and medium-sized enterprises, how to deal with the relationship between financing activities and investment activities?

The author thinks that the general idea of SME financing should be that investment should be combined with the financing of small and medium-sized enterprises, so as to promote the financing of small and medium-sized enterprises by investment.

SME financing decisions do not have the independence of large enterprises (especially joint-stock companies) in the financial decision-making of small and medium-sized enterprises. They should be part of the investment decisions of enterprises. SMEs must directly invest in investment.

That is to say, the financing decisions of small and medium-sized enterprises must go through the investment decision-making link to the goal of financial management, instead of establishing a direct functional relationship between SMEs' financial decisions and financial objectives.

This is because: (1) the financial goal of small and medium-sized enterprises is to maximize profits. Only investment activities can bring profits to enterprises, that is, optimal investment decisions are optimal financing decisions.

2. The contradiction between capital supply and demand of small and medium-sized enterprises is prominent. The channels, quantity and time of financing for SMEs are subject to various objective conditions.

It is unrealistic for small and medium-sized enterprises to use various means flexibly to adjust their capital structure as large enterprises.

Two, specific strategies for SME financing

1., the number of funds to pursue rationality.

For large enterprises represented by joint-stock companies, the purpose of SMEs financing is to achieve the best capital structure, that is, the pursuit of the lowest cost of capital and the greatest value of enterprises; and for small and medium-sized enterprises, the purpose of SMEs financing is to directly ensure the funds needed for production and operation.

Insufficient funds will affect the development of production, and the excess of capital will also lead to a reduction in the use of funds and a waste.

Because the financing of small and medium-sized enterprises is not easy, so when managers encounter a relatively easy financing environment, they are apt to make mistakes in "Han Xin points out more troops and more benefits".

However, if the funds raised are unreasonable or are not really needed, good deeds will become a bad thing.

The heavy debt burden will further affect the financing capacity and profitability of SMEs.

2., the use of funds to pursue efficiency.

Small and medium-sized enterprises in the SME financing channels and ways do not exist as large enterprises as a big choice, but this is not to say that SMEs can only "hunger for food", on the contrary, because of the small and medium-sized enterprises' ability to resist risks and financing difficulties, it is better to add a balance to each fund. Considering the factors of business needs and capital costs, SME financing risks and investment returns, we must combine the source and investment of funds, analyze the relationship between the cost of capital and the return on investment, and avoid mistakes in decision-making.

3. the pursuit of proportioning in capital structure.

The use of funds in small and medium-sized enterprises determines the type and quantity of fund-raising.

We know that the total assets of a company consist of two parts: current assets and non current assets.

The current assets are divided into two different states: first, the quantity of assets fluctuating with the change of production and operation, that is, the so-called temporary liquidity assets; and the two is the current assets which are similar to fixed assets for a long time to maintain a stable level, that is, the so-called permanent liquid assets.

According to the matching principle of structure, it is advisable for small and medium-sized enterprises to raise funds for fixed assets and permanent liquid assets in the medium and long term financing mode of small and medium-sized enterprises. Because seasonal, cyclical and stochastic factors cause funds needed for the change of business activities, the financing of small and medium-sized enterprises is mainly for financing.

It is emphasized that the ratio relationship between financing and investment in capital structure is especially important for small and medium-sized enterprises.

According to the survey, many of the financial failure cases of SMEs are not directly due to the lack of funds, but because the operators do not understand the characteristics of various funds and use short-term funds in the long-term investment projects.

4., in the operation of capital, we should pay more attention to stock financing while pursuing incremental financing.

Incremental financing means increasing the total amount of funds to meet the needs of production and operation. Stock financing means that by adjusting the structure of capital occupation and speeding up capital turnover without increasing the total amount of capital, the unreasonable use of funds can be avoided and the effect of unit capital will be increased so as to meet the expanding production and operation needs of enterprises.

The close combination of incremental financing and stock financing also reflects the inherent connection between financing activities and investment activities of SMEs, because stock financing is actually a kind of fund application, which belongs to the scope of investment activities.

For example, if an enterprise can make use of leasing, selling and pferring in the form of "stock financing", it can not only avoid losses and capital backlog, but also help to improve the liquidity of long-term capital and alleviate the pressure of too heavy financing for SMEs.

5., in the way of financing, we seek to win by reputation.

It is a compulsory lesson for every successful SME operator to maintain a good relationship with the financial institutions so as to make them understand the enterprises and see the long-term prospects of the enterprises and support the development of the enterprises.

Specifically, it includes two aspects: on the one hand, the choice of financial institutions; the financial institutions that are interested in and willing to invest in the development of small and medium-sized enterprises, and the financial institutions that can give guidance to business management; financial institutions with many branches and convenient pactions; financial institutions with sufficient capital and low capital costs; and good financial institutions with good quality and good professional ethics.

On the other hand, small and medium-sized enterprises should actively communicate with the cooperative financial institutions the business principles, development plans and financial conditions of the enterprises, explain the difficulties they encounter, win the trust and support of financial institutions with their achievements and credibility, and should not resort to various illegal or improper means to obtain funds.

Another related issue is worth mentioning.

At present, there are still a large number of small and medium business operators who do not establish real account books in order to evade state taxes, so that they can not grasp the actual operating conditions of enterprises, take decisions for granted, and fail to win the support of banks because of the lack of reliable and comprehensive accounting information.