Do you need funds for a business for a longer or shorter duration? How will you settle the financial matters of your business? Who will be an authorized person? Which bank will deal with your business transactions? You might answer such questions only if you have planned any financial policy for your business or organization.
A financial policy is a written set of statements that highlights the basic principles of business related to financial matters. If you are new in the world of business, you need to gain basic information on financial matters. Go to the forums like Financexod and collect information before deciding on the business policies.
Here are the top five ways to choose the financial policies:
- Duration of financing
The first and foremost important thing is to decide on either you are going to invest for a long term project or short term project. In long term financing, you have a professional solution of financing like taking a loan from the institutes or banks or grabbing the shareholders to invest. On the other hand, short term loan sources are irregular.
Longer projects are costly as compared to the shorter ones. While long term projects are less prone to financial risks and losses.
- Hedging Finance Policy
In hedge or matching policy, liabilities, and funds mature side by side. For example, a grocery store invests in the grocery items that expect to sell within 30 days it will get a bank loan to invest for 30 days only. Similarly, if a firm plans to purchase machinery that will benefit for 20 years only, the investment for the machinery will be sourced for such long term.
Keep in mind, choosing such a policy for your business will benefit you only when the duration of the liability and funding remain the same.
- Conservative Finance Policy
You cannot get always such ideal investments that match your funding and liabilities duration. In such cases, companies and organizations adopt conservative policy. This policy allows the companies to depend upon the long term permanent assets of the business and lowers the dependency on the short term and temporary assets of the business.
- Aggressive Policy
If you select this policy, you need to be careful and updated. This policy enables the entrepreneurs to depend upon the continuous short term funding for the permanent business asset. You will have to search for short term investments frequently to purchase any machinery that maybe your permanent long term asset. Such financial policies are more prone to losses and other risks.
- Highly aggressive Finance policy
In highly aggressive policies, entrepreneurs utilize the long term funding sources for permanent assets while only little short term investments are used for other business liabilities.
Whatever policy you choose, keep in mind that financial policies not only are compatible with the type of business you intend to run rather they are quite helpful to avoid legal complications in the business matters of any organization.