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The importance of finances to your business cannot be overstated. The tips on this page are designed to make you aware of ways that you can design a relevant financial strategies designed to successfully implementation of your organization
About this Page
It is impossible for anyone to implement business without financial resources. Yet some people try to do so. This page is designed to inform you on ways of managing this most important aspect of your business.
Business Finance:
Business finance can be seen as the relevant acquisition and utilization of the financial resources with which an entity is implemented. Not only does this aspect of an entity cover the actual acquisition of financial resources with which a business is implemented, it covers all other matters relating to the management of such finances which includes:
· The proper planning of the legal acquisition of funds to implement the entity
· The acquisition and maintenance of adequate amounts of that element towards the implement of the day to day activities of the entity
· The management of the funds that flow through which the entity in a way that such is put into the best possible use towards achieving its goals.
· The proper dispensation of such funds in a way that the objectives of the entity would be accomplished.
Note: with respect to all organizations, all of the financial arrangements of such entities must meet the standards of the conditions of the Internal Revenue code.
Managing the Business’ Finances
The management of the Finances of an organizations may be implemented by any of two individual, namely, its Director of Finance or the entity’s Controller and its Treasurer. This individual, who is responsible to entity’s stockholders and its Board of Directors for whatever finance comes into the entity, or which is expended by it, is supervised by the Director of Finance or Controller. An organization is responsible for ensuring that relevant actions are implemented by which that entity could reach its goals. For this to be effected, the organization must, within the law, exercise powers, within its mandate, to reach such goals.
An organization’s Finance Department is normally run by a committee which is headed by its Treasurer or its Controller, or its Financial Director. Such a person is responsible for ensuring that the organization is adequately equipped with financial resources with which it could reach its goals, and for the proper management of such resources. Wit his mandate given to him by the business’ Board of Director, this individual may negotiate loans and make other financial arrangements for the institution.
Where the company had both a Director of Finance and a treasurer or controller, each must works closely with the other and his assistants to ensure that the financial goals of the entity are met. The Director of Finance may, at his discretion, call and hold meetings on behalf of the entity where necessary.
The Board of Director’s role in Corporate Finance
An entity’s Board of Directors is its ultimate controller. This body of people is the holder of all of the assets with which a company is endowed and is responsible for doing the following:
1. Selecting the individual who would manage the finances of the organization.
2. Consummate whatever major financial arrangements the entity undertakes.
3. Approve financial transactions strictly in accordance with the Bylaws of the organization, including the raising of capital to start and operate the entity throughout its life cycle.
4. Ensure that the finance department is implemented in accordance with the laws of the entity and the state in which it is domiciled.
The role of the Controller’s or Treasurer
The ultimate responsibility of the controller or treasurer and his team is to manage the finances of the entity on behalf of the stockholders of the organization. Included in the finance committee would be the entity’s Financial Secretary.
The financial secretary:
· Handles all of the entity’s bookkeeping.
· Sets up all of the entity’s finance committee meetings.
· Prepares the agenda for all finance meetings
· Ensures that financial correspondence are timely recorded, reported and preserved.
Another name used to define an entity’s Finance Meeting is Business Meeting. This element must be held continuously for a number of reasons.
Managing the Finance Department
Corporate entities are governed by their constitution and bylaws and managed by a selected group of individuals called an Executive group as dictated by the entity’s constitution. The individuals of whom this group may be comprised are:
1. President.
2. Vice President.
3. Secretary.
4. Treasurer.
Finance
The Finance Department:
What does Business Finance of an entity mean?
Finance of an entity can be seen as financial resources with which a company must be implemented. I covers the whole range of the financial matters of the entity such as:
· Acquisition of funds to implement the entity
· The maintenance of adequate funds to implement the entity
· The method by which funds flow through the entity, by which it would be operated and the utilizing of those funds in a way that such would be put into the best possible use.
What is most important to note about business finance, is that such an element must meet the following criteria:
All of the financial arrangements of the entity must meet the standards of the conditions of the Internal Revenue Code.
Managing the Entity’s Finances
The management of the Finances of for profit organizations may be implemented by any of these two individual, namely, the Controller or the Treasurer. This individual is responsible to the stockholders or owner of the entity through its Board of Directors for whatever finance comes into the entity, or that which is expended by it. The role of the entity is to implement production in the most profitable manner. For this to be effected, the entity must be effectively managed, planned and organized and controlled in relation to the law of the land. The prudent and responsible management of the entity’s financial resources is essential to its effective transformation and longevity. To manage the entity’s finances adequately, finance meetings must be held. These are events at which the financial dynamics of entity are defined. Such meeting bring together those who are players in the financial dynamics of the entity.
The entity’s treasurer and his assistant must work with the rest of management to ensure that its financial goals are met. This individual may hold meetings in place of the Treasurer and the Controller of the entity.
An organization’s Finance Department may also be run by a committee which is headed by the church’s Treasurer or Controller. Such a person is also responsible for negotiating loans for the organization and making other financial arrangements for the institution.
The ultimate responsibility of the treasurer and his team is to manage the finances of the entity for the members of the organization. Included in the finance committee may be the entity’s Financial Secretary.
The financial secretary:
· Monitor all of the entity’s bookkeeping.
· Sets up all of the entity’s finance committee meetings.
· Prepares the agenda for all finance meetings
Capitalizing your Business:
This is one of the most important aspects of operating a business, especially because it so crucial to the success of that entity. Businesses that are unable to acquire capital to implement their operation run the risk of failing. Financing for a business may be acquired in the following ways:
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Using the entrepreneur’s savings.
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Borrowing from friends and family
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Selling shares as a means of capitalizing the entity,
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Acquiring loans from banks, other finance houses or other sources to capitalize the entity.
Shares VS., Loans
Selling shares of your company is an important way to raise capital to implement your company. Entrepreneurs may capitalize their businesses using two types of financing. One of these is by incurring debt; the other is through the sale or distribution of stocks. Instead of stocked, which depict ownership by people and the issuance of dividends when such profits are distributed by owners of entities, municipalities usually raise capital by issuing bonds.
What are stocks and how do they work
These can be seen as financial instruments that for profit corporations utilize towards raising capital for such entities. Unlike loans, the other basis by which corporations can raise capital, the entity does not have to repay stock holders when they buy shares in the company.
Types of Shares
There are two types of shares, which are broken down into different categories.
The first of these is no par shares, the other is par shares.
Par shares are shares in which the value of such shares are defined in the corporate instruments of the entity.
No-par shares are those that do not have a value assigned on the incorporation document of the entity.
Shares may be ordinary or they may be proffered.
Where you are doing business in the United States, and you intend to sell some of your shares to the public read this. It might help.
Where you are selling your company's stocks to the public as a basis of raising capital and you are doing business in the US, you need to adhere to Private Placement (Reg D and use an offering disclosure document to inform investors on pertinent details about the company and the stock offering. This document is the disclosure document, or as popularly known as the "offering memorandum". While the Direct Public Offering program has no prescribed disclosure requirements, it is always recommended that you utilize an offering memorandum to assure proper disclosure of all pertinent corporate details. This disclosure document also protects the company and company principals because it informs investors of all the needed disclosure items before they invest.
Some typical disclosures include information about: the company's business, company management, market for the company's product or services, use of invested proceeds, stock offering details (share restrictions, voting rights, etc.), details about shares held by management, details about risks investors may face (lack of operating history, product development risks, reliance on a single distributor, etc), recent significant transactions, and other disclosures related to the company's overall condition.
The company's offering memorandum will include a Subscription Agreement which is the "stock sales contract" between the investor and the company. This Subscription Agreement comes included with an Investor Suitability Questionnaire which helps the company determine an investors suitability for investing in the offering.
Regulation: D Regulation D is a regulation of the U.S. Securities and Exchange Commission, and is also a term for an investment strategy, mostly associated with hedge funds, based upon that regulation.
Regulation D, also known as "Reg D," exempts certain offerings of equity from many of the regulatory requirements that impose costs upon standard public offerings. A Reg D offering is intended to make access to the capital markets possible for small companies that could not otherwise bear those costs.
Business Finance Appendix 1.
Regulation D Retrieved from "http://en.wikipedia.org/wiki/Regulation_D"
This Regulation establishes three exemptions from Securities Act
registration. Let's address each one separately.
Rule 504
Rule 504 provides an exemption for the offer and sale of up to
$1,000,000 of securities in a 12-month period. Your company may use this
exemption so long as it is not a blank check
company and is not subject to Exchange Act reporting
requirements. Like the other Regulation D exemptions, in general you may
not use public solicitation or advertising to market the securities and
purchasers receive "restricted" securities, meaning that they may not
sell the securities without registration or an applicable exemption.
However, you can use this exemption for a public offering of your
securities and investors will receive freely tradable securities under
the following circumstances:
You register the offering exclusively in one or more states that require a publicly filed registration statement and delivery of a substantive disclosure document to investors; You register and sell in a state that requires registration and disclosure delivery and also sell in a state without those requirements, so long as you deliver the disclosure documents mandated by the state in which you registered to all purchasers; or, You sell exclusively according to state law exemptions that permit general solicitation and advertising, so long as you sell only to "accredited investors," a term we describe in more detail below in connection with Rule 505 and Rule 506 offerings. Even if you make a private sale where there are no specific disclosure delivery requirements, you should take care to provide sufficient information to investors to avoid violating the antifraud provisions of the securities laws. This means that any information you provide to investors must be free from false or misleading statements. Similarly, you should not exclude any information if the omission makes what you do provide investors false or misleading.
Rule 505
Rule 505 provides an exemption for offers and sales of securities
totaling up to $5 million in any 12-month period. Under this exemption,
you may sell to an unlimited number of "accredited investors" and up to
35 other persons who do not need to satisfy the sophistication or wealth
standards associated with other exemptions. Purchasers must buy for
investment only, and not for resale. The issued securities are
"restricted." Consequently, you must inform investors that they may not
sell for at least a year without registering the transaction. You may
not use general solicitation or advertising to sell the securities.
An "accredited investor" is:a bank, insurance company, registered investment company, business development company, or small business investment company; an employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million; a charitable organization, corporation or partnership with assets exceeding $5 million; a director, executive officer, or general partner of the company selling the securities; a business in which all the equity owners are accredited investors; a natural person with a net worth of at least $1 million; a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; or a trust with assets of at least $5 million, not formed to acquire the securities offered, and whose purchases are directed by a sophisticated person. It is up to you to decide what information you give to accredited investors, so long as it does not violate the antifraud prohibitions. But you must give non-accredited investors disclosure documents that generally are the same as those used in registered offerings. If you provide information to accredited investors, you must make this information available to the non-accredited investors as well. You must also be available to answer questions by prospective purchasers.
Here are some specifics about the financial statement requirements applicable to this type of offering:
Financial statements need to be certified by an independent public accountant; If a company other than a limited partnership cannot obtain audited financial statements without unreasonable effort or expense, only the company's balance sheet, to be dated within 120 days of the start of the offering, must be audited; and Limited partnerships unable to obtain required financial statements without unreasonable effort or expense may furnish audited financial statements prepared under the federal income tax laws.
Rule 506: As we discussed earlier, Rule 506 is a "safe harbor" for the private offering exemption. If your company satisfies the following standards, you can be assured that you are within the Section 4(2) exemption:
You can raise an unlimited amount of capital; You cannot use general solicitation or advertising to market the securities; You can sell securities to an unlimited number of accredited investors (the same group we identified in the Rule 505 discussion) and up to 35 other purchasers. Unlike Rule 505, all non-accredited investors, either alone or with a purchaser representative, must be sophisticated - that is, they must have sufficient knowledge and experience in financial and business matters to make them capable of evaluating the merits and risks of the prospective investment; It is up to you to decide what information you give to accredited investors, so long as it does not violate the antifraud prohibitions. But you must give non-accredited investors disclosure documents that generally are the same as those used in registered offerings. If you provide information to accredited investors, you must make this information available to the non-accredited investors as well; you must be available to answer questions by prospective purchasers; Financial statement requirements are the same as for Rule 505; and Purchasers receive "restricted" securities. Consequently, purchasers may not freely trade the securities in the secondary market after the offering.
E. Accredited Investor Exemption - Section 4(6) Section 4(6) of the Securities Act exempts from registration offers and sales of securities to accredited investors when the total offering price is less than $5 million.
The definition of accredited investors is the same as that used in Regulation D. Like the exemptions in Rule 505 and 506, this exemption does not permit any form of advertising or public solicitation. There are no document delivery requirements. Of course, all transactions are subject to the antifraud provisions of the securities laws.
As a hedge-fund strategy, Reg. D refers to investment in micro- and small-capitalization public companies that are raising money in private capital markets. Often these securities are hedged by way of a look-back provision or a convertibility option with an exercise price that floats.
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