They are often complex entities where ownership is separated from management and is often spread among various unrelated parties. Occasionally, large businesses are owned by a family or single individual.
Large businesses have a well-established trading history and a track record which might have some public visibility. By virtue of their size and trading history, large businesses may have a complex financial structure which uses various types of finance and different providers.
Large businesses frequently operate in mature and relatively stable markets. They may also operate in high-growth markets and those at various stages of development; they may also operate in high growth markets or they may also be seeking to reposition from a mature market to markets with higher growth potential.
The financing requirements of a large business may cover the management of short-term cashflow, restructuring short-term and long-term debt, adjusting the overall capital structure between debt and equity, renewing expiring finance facilities, financing major items of equipment or the growth of the business via debt or new equity, including possible listing on a stock market.
The financial structure is managed by in-house professionals. External professional advisers may review the current structure and the availability of alternative or additional funding in order to match it with the needs of business.
Different types of finance and different providers and advisers are used for different purposes. Large businesses may deal with five or more banks. Their track record and ability to provide security may provide access to further types of finance.
Large businesses should consider the following finance options:
Cashflow finance/invoice factoring
Businesses ideally suited for cashflow finance/invoice factoring are those that provide tangible goods or services. It is commonly used by businesses that have high levels of working capital tied up within debtors. It is also used by growing businesses who are seeking to manage their working capital. Some examples are manufacturers, wholesalers, engineers, transport companies and labour hire/recruitment service providers.
Hire Purchase (HP)/leasing
The use of HP/leasing is particularly common in industries where expensive machinery is required, such as construction, manufacturing, plant hire, printing, road freight, transport, engineering and professional services. It is also used to finance other capital requirements (e.g. cars or photocopiers). The asset provider usually dictates this type of linked finance.
Bank loans are frequently used to finance start-up capital and also for larger, long-term purchases. They are generally a quick and straightforward way to secure the funding needed, and are usually provided over a fixed period of time.
Overdrafts are often used to ease pressures on working capital and as a back-up for unexpected expenditures. They are a form of finance for businesses that experience fluctuations in working capital.
Stock market listing
A stock market listing is normally used to raise capital for a business’s consolidation and growth objectives, such as new production facilities, expanding in overseas markets or paying back a venture capital investor.
Listing is also a way of attracting private investors into a business and for facilitating an owner-manager to cash in on their investment. This type of investor includes business angels, Enterprise Investment Scheme investors and Venture Capital Trust investors, who generally like an exit strategy in place.