Corporate finance made simple: tips every SMB should know

Understanding corporate finance is crucial for SMBs wanting to grow by securing funding or making investments.

However, many SMBs struggle to navigate financial planning. Limited expertise and resources leave them unsure about how and when to access capital.

In this guide, you’ll learn corporate finance basics, including how to use key strategies to grow your business. You’ll discover the three main elements of corporate finance, how to use them for success and how Pipedrive simplifies the process.

What is corporate finance?

For example, a tech startup might secure funding to:

• Develop its product

• Scale marketing strategies

• Hire new sales team members

This funding helps the business increase its valuation and attract more investors. The company accelerates growth and expands into new markets, leading to higher returns.

Three key activities in corporate finance

Corporate finance consists of three main activities: capital budgeting, capital financing and working capital management. Mastering these tasks allows businesses to scale efficiently, secure funding on favorable terms and sustain profitability.

Here’s a closer look at these activities:

1. Capital budgeting

Capital budgeting involves directing funds to the most profitable areas of work. The process helps companies invest in opportunities that offer the best return and support long-term business goals.

For example, a B2B software company might use capital budgeting to decide whether to:

• Invest in developing new features to attract more enterprise clients

• Hire new sales reps to target larger accounts

Consider a manufacturing company trying to decide whether to make a capital expenditure of $2 million to purchase new equipment. It evaluates costs, potential revenue and payback time to ensure the investment will increase efficiency and profits.

In each case above, the company must assess ROI and select the option that best fits its strategy and growth goals.

Here’s how to perform capital budgeting:

• Identify investment opportunities. List potential projects or expenses that require funding.

• Define business goals. Clarify your goals (for example, growth, efficiency or market expansion) to guide financing decisions.

• Estimate future cash flows. Project the expected revenue, savings or benefits each investment will generate over time.

• Evaluate profitability. Calculate net present value (value of expected earnings to the value of costs) and internal rate of return (expected annual rate of return) to assess which projects will provide the best return on investment.

These steps will help you choose investments that meet your goals and provide the best return with manageable risk.

2. Capital financing

Capital financing is how businesses raise funds to support their investments and operations. It enables companies to invest in new opportunities while staying financially stable.

The fundamental components of capital financing are:

Debt and equity typically appear on financial statements (like balance sheets), allowing investors to see a company’s financial health.

Choosing the right mix of debt and equity helps businesses secure financial viability. For example, consider a manufacturing company that wants to expand production and must choose between securing a loan (debt financing) and selling shares (equity financing).

After evaluating interest rates and repayment terms, the company decides a loan is the best option. They use these funds to buy new machinery, increase output and meet growing demand without giving up equity.

Here are some things to consider when finding the right balance of debt and equity:

• Control and ownership preferences. Debt lets you keep full ownership, while equity means giving up some control to investors.

• Repayment terms. Debt requires regular payments, while equity involves no repayment but may involve sharing profits (also known as dividend distributions).

• Risk tolerance. Too much debt increases financial liability, while too much equity may dilute ownership and control.

• Business growth stage. Startups might rely more on equity, while larger businesses can handle more debt due to stable cash flow.

• Market conditions. Economic factors (such as interest rates, investor sentiment and other sales trends) can influence your decision-making.

Regularly reassess your capital structure as your business grows (we’ll discuss capital structure in more detail below). Adjust as needed to align with your financial goals and changing market conditions.

3. Working capital management

Working capital management involves managing cash flow for day-to-day operations. The process ensures a business has enough liquidity to cover short-term costs, like payroll or rent.

For example, a retail business might use working capital management to ensure it has enough cash to pay employees, cover rent and stock inventory.

By carefully tracking cash flow, the business avoids running out of funds. This approach helps ensure smooth operations – even during slow sales periods.

Here are some of the key factors to consider in working capital management:

• Cash flow. Ensuring a well-stocked source of funds to cover daily expenses and short-term obligations.

• Inventory management. Balancing enough stock to meet demand without overstocking and tying up cash.

• Receivables and payables. Monitoring the timing of customer payments and vendor terms to optimize cash flow.

• Liquidity. Maintaining enough liquid assets to handle unexpected costs or opportunities.

• Seasonal fluctuations. Planning for periods of high and low demand to ensure cash flow stability year-round.

• Credit pricing and policies. Setting clear terms for credit sales, ensuring timely collections and minimizing bad debts.

Regularly reviewing these factors prevents cash shortages and reduces financial strain. As a result, you’ll be in a good position to grow and develop your business.

Why is corporate finance important for SMBs?

SMBs often operate with limited financial resources. Corporate finance helps SMBs divide capital efficiently to secure financial success. It helps business owners manage cash flow and make decisions that drive growth.

Here are the key benefits of effective corporate finance for SMBs:

How SMBs can leverage corporate finance for success: top tips and advice

With the right approach, corporate finance helps SMBs make smart financial decisions. Here are some best practices for leveraging corporate finance effectively.

Understand your company’s capital structure

Your capital structure is how you use debt and equity to fund your operations. Understanding your capital structure helps you balance risk and return, which is key to financial stability.

Capital structure defines your business’s financial health by looking at the mix of two components:

• Debt, including loans and bonds

• Equity, including owner investments and retained earnings external funds

Capital structure can be represented by the following equation:

The percentage of each that makes up your total assets will give you an idea of your structure.

A strong capital structure typically has low debt and high equity, but there are three key ratios for analyzing capital structure:

1. Debt ratio

The debt ratio measures the proportion of a company’s assets financed through debt using the following formula:

A higher debt ratio indicates more financial leverage and greater risk.

Example: if a company has $500,000 in debt and $1,000,000 in assets, the debt ratio is:

The company finances 50% of its assets through debt.

When to use it: when you want to evaluate your company’s reliance on debt.

2. Debt-to-equity ratio

The debt-to-equity ratio compares a company’s total debt to its shareholders’ equity. It shows the balance between debt financing and equity financing as follows:

A higher ratio means the company relies more on debt, which can increase risk.

Example: if a company has $600,000 in total debt and $400,000 in total equity, the debt-to-equity ratio is:

The company has $1.50 in debt for every $1 of equity, or a 1.5 debt-to-equity ratio. The ideal ratio depends on your industry and your individual company goals.

When to use it: when you want to understand how much financial leverage your company has.

3. Long-term debt-to-capitalization ratio

The long-term debt-to-capitalization ratio assesses the proportion of long-term debt in a company’s capital structure. The following formula measures the company’s long-term stability and ability to meet future obligations:

Example: if a company has $300,000 in long-term debt and $700,000 in shareholders’ equity, the long-term debt-to-capitalization ratio is:

The company gets 30% of its capital from long-term debt.

When to use it: when you want to evaluate long-term solvency and financial health.

For example, a higher debt-to-equity ratio may indicate over-reliance on debt. A lower ratio means you might be missing opportunities to leverage financing for growth.

Regularly assess your capital structure to ensure you’re not overly reliant on debt. A well-balanced capital structure can reduce financial stress and improve your ability to raise future funds.

Use the right technology

Leveraging financial technology can enhance your corporate finance practices. The right tools help you analyze relevant financial data to make informed capital investment decisions.

Use the following tips to find the right financial technology for your business:

• Look for the right features. Determine which financial processes to streamline for better corporate finance management. Then, you can choose tools with the features to support these processes.

• Evaluate integrations. Ensure the software integrates with your existing systems. For example, if you use accounting systems like QuickBooks, choose a platform that integrates with it. Seamless integration cuts down on manual work, reduces errors and gives a complete view of your financial data.

• Consider scalability. Think about whether the tool can scale with your business as you grow. For example, can it support additional users if you hire new employees? Can it handle multiple currencies if you expand overseas?

• Review AI functionality. Choose platforms that use AI to analyze financial trends and automate repetitive tasks. These features can save time, increase accuracy and prevent costly mistakes.

As your business grows and changes, so will your needs. Continually review the features and functionalities you need to ensure you keep using the right tools.

Consider working with an expert

Corporate finance can be complex, especially for SMBs without in-house expertise.

Working with a financial advisor or accountant can help you navigate tricky financial decisions. They have the knowledge to simplify financial decisions, understand the stock market and ensure your business remains financially stable while achieving growth.

Here are some of the signs you need financial accounting services:

If you decide to work with a finance professional, partner with the right person or company. The right financial institution will know your industry and help you make the best decisions for your business.

How Pipedrive simplifies corporate financial management

Limited resources, lack of financial knowledge and disconnected systems are some contributing factors that can make tracking and managing key financial data difficult for SMBs.

Pipedrive’s sales CRM helps by providing a structured way to track financial data. It automates financial reporting, enables the creation of custom dashboards and integrates with accounting tools, making it easier to:

• Create accurate forecasts

• Manage costs and invoices

• Optimize financial planning

Here are the features that help business owners with corporate finance:

Centralize client data

Pipedrive’s simple CRM organizes client data in one place, providing a clear view of where each client is in the sales pipeline. Here’s an example of what this looks like:

Centralizing client information helps you easily track key client needs and communications. As a result, you can focus on corporate finance tasks like managing cash flow and making investments.

Automate sales tasks

Use Pipedrive to streamline repetitive tasks, like sending follow-up emails and scheduling meetings.

Pipedrive’s AI CRM features can also help you save time by automating and personalizing customer interactions.

The AI email writer, for example, generates personalized emails based on lead details and deal history. Sales reps can then focus on more strategic tasks, like optimizing business debt and equity.

Here’s an example of how the AI email generator works:

Organize corporate finance activities

Pipedrive has project management capabilities that track financial planning tasks and milestones. As a result, you don’t miss any critical deadlines or client commitments.

Project management features include:

• Mapping out activities in a kanban board view

• Creating to-do lists with tasks and subtasks

• Tracking projects with labels, custom fields and filters

You can also use the pipeline view to track corporate finance activities. This feature lets you track the progress of financial tasks (like budgeting or funding rounds) in real time.

Tracking these activities gives you an instant overview of all financial information. For example, you can spot cash flow delays and monitor budget allocations. These insights help you make quick decisions to maintain financial stability.

Find out more about pipeline view in the video below:

Final thoughts

Corporate finance helps businesses manage money effectively, make better investment decisions and fund operations to maximize stakeholder value. SMBs may struggle with corporate finance due to limited resources and expertise.

To make the process easier, use Pipedrive’s sales CRM. Access financial performance in real time and use these insights to make informed decisions about your debt and equity. Sign up for a free trial today.