What is the financial structure? Is financial structure the same as economic structure, and how is it classified from the point of view of sources of financing? The answers to these and other interesting questions in today's article. Go ahead, start reading!
We can define the financial structure of a company as the one that pooling of financial resources that the members or shareholders of that organisation have managed to raise in order to creating the economic structure to enable them to start up the business.
This is best illustrated by an everyday example: if we think of a company as a large building, its financial structure would consist of the pillars on which the building stands. If these pillars are solid, stable and built with good quality material, the building will rise without cracks or failures and, moreover, the architects will be able to continue building new floors or improve those already constructed. The simile is easy to understand: a company with a solid financial structure, with solid pillars, will have a better chance of escaping financial cracks or bankruptcy. It will also be able to continue to grow and expand or, if its managers so decide, improve the infrastructure to offer more and better services to its local community, find new customers, secure its captive customers, improve the salary conditions of its employees with new formulas of flexible remuneration, etc.
Some new entrepreneurs confuse financial structure with economic structure and they are different concepts. Let us try to clarify this:
A classic way in which economists classify the financial structure of a firm is by looking at the different sources of funding The sources of finance used by entrepreneurs to create the future economic structure to support their business activity. These sources of financing can be very varied, but the most common would be the following:
Internal sources of funding are also referred to as self-financing or self-financing. In this case the financial resources with which the assets are acquired belong to the partner(s) setting up the company.
External sources of finance can be own or external. Own sources would be, for example, personal loans taken out by the partners to set up the company. External sources would be, for example, credits and loans requested by the company itself (not by individuals), on leasing, the factoring, etc.
In other words, a company can creating its financial structure in two ways which, moreover, are often complementary:
What does it depend on Whether a company decides to set up its financial structure with its own funds or with borrowed funds? It depends on many variables, such as, for example:
Another theoretical way to classify financial structure of a company is by looking at the type of accounts that make it up. In this sense, the financial structure would be made up of two major groups of resources: Permanent and Current Liabilities.
