Setting up a corporate finance department requires quite a significant number of human and financial resources. One would wonder when the company is trying to maximize profits by reducing costs; why it would invest in such a costly venture. The answers to these questions lie in an understanding of the true reasons for the existence of a corporate finance department.
Likewise those people working in corporate finance can get lost in the bureaucracy of the department while forgetting their proper roles as custodians of capital investments. They can allow themselves to be divorced from the company’s core objectives thus developing a sense of professional detachment. Needless to say this will not improve inter-team working and will certainly lead to the loss of focus on the capital maximization strategies that a successful organization needs to muster.
The danger of such a culture developing is that there is no proper respect for money as a resource. All they see is money coming in and then they invest it somewhere else. The real job of corporate finance is in fact to ensure that at all times the company have enough financial resources to accomplish its core objectives. This is not just about investing wisely; it is also about raising revenue and focusing on viability.
The criticism of venture capitalism
The corporate finance department has to ensure that the venture capital sector is kept in check. Venture capitalism has become a by word for corruption and exploitation. The reputation of venture capitalists has been sullied by the few bad apples that get companies and strip them bear for sale at knock down prices thus causing alarming unemployment and rejoicing in the misery of others. Real venture capital does not seek to or achieve an objective of depriving the company of funds so that it can be bought for next to nothing at a later stage.
Corporate finance must ensure that venture capital investments do not grip the entrepreneurial team into inflexible contracts that are ultimately harmful to the company. Rather good corporate finance is about freeing up resources for further investment and development. Good corporate finance has ethical standards that put investors and people at the heart of their operations. It does not undermine experienced managers but works with them to provide funding solutions for the priority projects that have been agreed on a strategic level.
At the heart of the organization
The danger in dismissing corporate finance as just another arm of the venture capitalist brigade is that it denigrates all the important business functions that would not be possible without the work of venture capitalists. The need to obtain and manage finance is at the core of an organization’s survival. If it appears that an organization is unable to or unwilling to provide that level of resources then it will inevitably collapse. That is why it is important to have a fully functioning corporate finance team which assists the general management team to mobilize funds and enable the completion of the strategic objectives that form the business plan. The methods and forms of the corporate finance teams will vary from company to company but the core business is the same.