Factors that affects cost of capital in businesses How to Become an Investment Banker Definition Types Of Risk In Finance

Category: Business

Setting up a Successful Business

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The challenges that come with establishing and running a business are immeasurable. There is a wide range of difficulties you get to face in your startup or developing business. Competition is one that affects many. You may find other companies offering the same products or services as you.

They might be steps ahead of you in a way, and that is why you will see most buyers flocking their shops but not yours. Situations like that require one to be strong and devise strategies that will help improve everything. We are living at a time when many have adopted modern methods of pushing their products and services.

Financial challenges are also common in most enterprises. You may find yourself in a difficult situation where you lack the funds to run or even grow your business. Monitoring performance can be a difficult task at times. Failure to keep track or understand the performance of your business will leave you counting losses. You will even lose customers without your knowledge.

Most businesses have collapsed because of such challenges. Many who give up realbusiness operational growth fast will throw in the towel whenever they are faced with such challenged even during the early stages. To set up a successful business empire, there are a couple of things you have to do. They include:

Plan

Coming up with a good business plan will see you succeed in this competitive field. First, you should set goals and come up with different strategies that will see you achieve them. Sticking to your plans can be difficult, but it all needs sacrifice. Give it your all and enjoy the fruits. Failing to set goals will see your business crumble down very fast or you will always be counting loses.

Patience

In your quest to build a successful business empire, you are advised to observe the virtue of patience to succeed. Established businesspersons will tell you it took them quite some time to get to their current level. You will find a lot of obstacles on your way, and therefore you are advised to stay strong and come with strategies that will help keep your business going.

Networkcorrect business plan

Networking with others is another good way of growing your business. You get to exchange ideas and learn new things that will help your business grow. Make sure you attend the different business forums that provide a platform for interacting with others and learning new things. Doing so will see your business grow significantly.

Important factors to consider when recruiting new staff into your company

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The success of a company or any business organization is highly dependent on the quality of staffs that are in that organization. This is because the human factor in any organization is an essential component that should never be ignored by any employer who wants to be successful. It is very important to look for an individual who is right for the specific job you want to be done and more so, a person who has the right qualifications and skills for that job. It is worth noting that hiring the right staff will ensure low employee turnover leading to less money and time spent in interviews, training as well as the hiring of new employees. Below are some of the main issues that any employer should put into consideration when hiring new staff.

Work experience

fdgdgdfgfdgfdgfdgkhjkWork experience is probably one of the major considerations that any employer should be keen on when hiring his staff irrespective of the job. Experience of any prospective employee in the specific area is very important since it will be easy for the individual to pick up his role in the company without much training. This will reduce expenses that would be used in training the new employees and that money can be used elsewhere. However, some employers might consider a strong work background in place of work experience.

Level of education

In the current world, education has become a significant factor and requirement in anything one may wish to do. Irrespective of the status of the job, education has always been cited as a major requirement for one to get employed. It is therefore very important for any employer to carefully examine the educational background of the potential employee and set the basic qualification required. Some positions may require advanced certification while others may not require.

Skills set

There are some specific skills set for potential employees which determine when hiring. For example, if you have a nail salon you should look for the employee with manicure skills. If you have a cloth designer workshop, you should look for the employee with tailoring skills. The employee who has computer programs experience can key and type. They can balance books which are a good resource. Always give a test in essential skills to employees whom you are employing. This will assure you the quality of skills that your employee have.

Applicant confidence

fdgdfgdfgfdgdfgdfgdfgAny applicant who comes with a confident attitude always makes the best first impression. This definitely is the same confident the applicant will approach the clients with. An applicant with self-confidence believes in himself/herself. One believes that he/she can face any challenge, exceed expectation, and can handle the job well. All companies which hire individuals with confident benefits in performance.

Applicant personality

Applicants with smiles and warmth will always create teamwork in any organization. Personality is one of the key traits of customer-oriented applicants. An employee with personality is always willing to cooperate with others. This enables her/him work well with others. While hiring, speak with the applicant to get his/her natural characteristic idea. Introduce him/her to the other employees and judge him/her on how he/she will respond to different types of individual.

These are the most important factors which you should consider when recruiting new staff members into your company.

Factors that affects cost of capital in businesses

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Cost of capital refers to the amount of capital used to finance a business.

Factors that affects cost of capital in businesses (1)

The cost of capital usually depend on the mode of finance that has been used.

For instance if the business is financed solely through debt, then that is referred as cost of debt. On the other hand, if the business is financed through equity, then that is referred to as cost of equity.

In most cases, companies usually use a combination of both equity and debt to finance their business. Cost of capital usually represent the hurdle that the company or business must overcome in order to generate profit and as a result, it is usually used in capital budgeting to determine if the company or business should proceed with the projects or not.

The cost of capital sources usually varies from business to business depending on factors such as profitability, credit worthiness, operating history among many others.

This means that businesses which are still new have higher cost of capital than businesses that have already established themselves on the market.

In this article, we are going to focus on factors that affects cost of capital in businesses.

1. Current economic conditions

If current economic conditions are good, financial institutions can easily give loans at lower interest to companies.

This will in turn lower the company’s debt which is actually part of cost of capital. On the other hand, if there is a big recession in the market, many financial institutions will give loan at high interest rate meaning that the company’s debts will increase, increasing the cost of capital.

Therefore, if there is stability in the market, the cost of equity capital will increase and cost of debt will decrease.

2. Current dividend policy

Every business has its own dividend policy. The business must determine the total amount of earning that is willing to pay as dividend.

It is therefore very important to understand the concept of price earning ratio. If the price earning ratio increases, they cost of retained earnings will decrease. This is because the money that has been retained to be used to promote the business will be subtracted.

3. Financial and investment decisions

The financial and investment decision that a company makes also affects the cost of capital.Factors that affects cost of capital in businesses (2)

For instance, when a company gets new debt or share capital, it will have to inform the investor about the usage of that particular fund.

Therefore, if there is more risk to that particular investment, the creditors and shareholders will get higher reward, a factor that will affect the cost of capital.