Everyone should know and understand money. Financial literacy teaches mostly personal and family budgeting but it is equally important to know and respect the other side of the economic equation. To provide and improve an acceptable standard of living, infrastructure (water, roads, housing, etc.) and opportunities (jobs), consumers must purchase from business, for business to grow and create more jobs and of course, paid taxes which builds and maintains schools, hospitals, etc. Money must circulate from salaries to business to Government and back to salaries.Banks and other lending institutions are first and foremost in business. To grow and paid salaries and expenses they sell money for a fee or grant loans with interest and penalties. If they do not grant sufficient loans they would not be able to earn interest to paid their salaries and expenses. These banks must lend to customer that can and will repay the loans, so if the customer has a good steady salary and a track record of honesty all the banks want you. Now, you must interview them looking for the lowest interest rate and the best terms and conditions. Money must be repaid but you can decide how much and when.
In much the same way, business leaders shop for the cheapest money using numerous strategies to fit the organization they lead. The cheapest money available to business is equity funds from shareholders. This is like borrowing from trusted family or friends and giving them money back when you can, based on profits. Business carries debt financing to meet its current annual salaries and expenses. This, like personal borrowing, is based on the organization ability to repay the loans. Money, from any source, must go to work and be paid.
Equity Funding – The Organization must have name or brand recognition (Goodwill on the balance sheet). Strategically selected dates and times for public announcement (listed on a stock exchange – earnings reports and guidance for the next quarter). Published audited annual reports presented at an annual shareholders meeting where directors are elected. And a track record of meeting its dividend policy to give confidents to shareholders.
The Organization must prepare a sound highly confidential business plan with defendable marketing strategies and operating within preset financial ratios that would justify the viability (feasibility) of the expansion and the projected increase of income in the financials. This five year business plan must firstly be presented to the financial committee of the board of directors then to the entire board of directors for acceptance and implementation.
The Organization must extract a prospectus from its business plan, indicating the use of funds, the offer to potential shareholders with an opening and a closing date, projected earnings and dividend policy. This prospectus must firstly be presented to a financial underwriter and then to shareholders by means of stock market via its registered brokers.
Debt Financing – The Organization must have a good credit rating from a recognized rating agency to attract the best borrowing rates and other favorable repayment terms and conditions.
Rationale
T.A.J & Associates Company Limited uses this occasion to comment on topics that have been covered, both academically and by the mainstream media, to add its opinion and point out investment opportunity, not to invoke any social action.
