First, let's look at what fixed capital is. It consists of the sum of fixed assets (FA), intangible (IA) and financial assets (FA). Fixed capital includes everything that an organization or enterprise has:
current assets;
real estate (buildings and structures) and movable (equipment, etc.) property;
profit;
shares.
This also includes various resources - patents, licenses, etc.
To determine what investments in fixed capital are, we will formulate the general concept of investments: these are investments of any funds to increase income. The nature and type of investments can be very different. You can invest not only money, but also any resources - time, for example.
When we talk about investments in fixed capital, we mean expenses on improving the performance of activities:
directing funds to organizing and improving production;
investments in increasing intellectual property;
restoration of fixed assets as they wear out (in monetary terms - depreciation);
purchase of new software, patents, licensed products.
When a company does not invest in fixed assets, and the only working capital is the initial investment, one cannot expect rapid development and increase in the company's profits. Business prospects depend on attracting funds to fixed capital.
They are directed to modernizing production, strengthening trading positions in the market, increasing the company's authority. If you take only the profit received as a source of investment, but do it regularly, the company will develop.
With the help of investments in fixed capital, the company increases the volume of property, that is, its assets. Investments in this case are long-term, which lead to stable active progress.
Fixed assets are the foundation of production. In the process of activity, they wear out, become obsolete and require replacement. It is important to renew resources in a timely manner throughout the entire period of operation so that they can be used in subsequent production cycles. Therefore, a competent approach is to attract maximum investment in fixed assets.
Fixed assets are formed at the start of a business: equipment and machinery that are necessary for the normal operation of the enterprise and the release of products are purchased. They generate profit and become an integral part of the company's development. In addition, new jobs are created, which provides for the development of the country's economy.
By analyzing the company's work, investment directions and instruments are determined in order to increase fixed capital. This will allow you to manage the direction of the business, quickly adjust it if necessary, conduct a competent pricing policy and increase the profitability of the enterprise.
The volume of investments in fixed capital is divided by:
sectors of the economy;
sources of financing;
nature of activity;
types of fixed assets and ways of their renewal.
Statistics claim that the income from investments in the last three years was directed mainly to:
replacement of equipment that has served its purpose and become unusable;
automation of components of the production cycle, elimination of manual labor;
saving resources - electricity, water, etc.
reducing the cost of production of the product;
environmental protection measures;
implementation of relevant technologies, etc.
Directions of investments:
1. Long-term investments (real investments) in increasing production capacity - a prerequisite for active growth of the company. Having analyzed the activity, they choose the areas that are advisable to develop in order to increase income. Then they develop a plan and allocate funds.
2. Short-term investments - increased investments in projects, funds (during one financial year). With their help, they receive quick profits and the ability to direct them to production purposes.
3. Investments in securities and lending to third-party organizations. In this way, the company's free funds generate additional profits. If the company issues loans, it will receive interest that will be added to the fixed capital, thus expanding the enterprise.
4. Scientific developments, new technologies, patents, licenses. Such investments can make the enterprise a leader in its industry. Therefore, in order to gain an advantage over competitors, many businessmen try to follow this path.
Entrepreneurs often resort to attracting investments in fixed capital, as this provides a rapid increase in profits in a certain direction.
The choice of the method of obtaining investments remains with the head of the enterprise. First of all, they try to use working capital, but often it is not enough and you have to look for investors or take loans.
When investing in fixed capital, it is important to have an indicator of fixed capital costs in monetary terms so that you can monitor the project's payback.
It depends on:
the level of competition in the market;
the quality of the product;
the rational use of production facilities;
the product sales scheme (pricing policy, marketing strategy).
Sources of investment in fixed capital can be own or attracted from outside. Either received income or depreciation charges are invested from own funds.
Additional financing can also be obtained:
from the state - grants, subsidies;
by issuing shares and bonds to attract funds;
by taking out a loan from a bank - the most common type;
from a third-party investor.
To make investments meaningful, the entrepreneur is engaged in calculations and planning of expenses, that is, he develops the company's investment policy. It is necessary to set aside funds for unforeseen expenses: equipment failures, accidents, etc.
In the future, the work of the enterprise depends on the development strategy. It determines the rate of asset spending and the direction of investments.
A few steps that are necessary to obtain investments:
Determine the amount of funds required.
Evaluate the fixed assets to understand what amounts the company operates with and what profit they bring.
Draw up an investment plan.
Determine the methods of accounting and monitoring the project.
If a company decides to attract investments, it is necessary to:
Develop a business plan that will show the benefit of investing in the company's fixed assets.
Determine the fee for investments - the size of the share in the business or the percentage of deductions from income, etc.
Inform interested market participants - brokers, investment funds, etc.
Organize a meeting with a potential investor and conduct competent negotiations.
Sign an investment agreement.
Developing a draft agreement is an important point in carrying out investment activities. It must take into account the rights and obligations of the parties. Please note the points that if you do not receive the planned benefits, you are not responsible for this.
The project owner determines the volume of necessary investment in the business, and the investor evaluates the investment according to the following points:
Benefits for the enterprise, feasibility study, goal.
The total size and investments in each area separately.
Timeframes for achieving the goal and returning the invested money.
Expected profit of the parties to the agreement.
People who have money invest it in order to generate income. To attract capital to your business, you must draw up a business plan that will show the way to increase the profitability of the enterprise with the help of investments. It is advisable to make your project attractive to investors by offering them special preferences and benefits.
If you plan to develop with the help of investments, describe the project in such a way that investors will be interested in it. Put things in order in the company: create a transparent, understandable management scheme, pay off large accounts receivable, etc. This will increase trust in the company and help conclude profitable contracts.
Use all available means to generate interest in the enterprise among potential investors: participate in industry, city, international conferences, seminars as a speaker or visitor, make contacts at exhibitions in your specialty and related areas.
Contact firms that select investors for different industries - their services cost money, but they have a client base, intermediaries will find a reliable investor faster.
Without investments in the company's fixed capital, its development is impossible. It is important to constantly analyze the number and structure of assets after investing additional funds. It is impossible to allow the volume of long-term liabilities and the company's own capital to be less than the amount of investment.
Thank you for the explanations on finances and strengthening the business. Much in this area remained unclear, but I hope that the authors will continue to delight us with useful articles.
After reading the article, many things became clear in investment matters, and most importantly, now I can correct my mistakes in financial management. Thanks for the details and explanations.
Finally found some useful information for myself in the field of finance. Thanks to the author for a brief overview of a topic that is important to me and would like to get a little more detailed information.
400 E Pratt St #62, Baltimore, MD 21202
+1 410-727-3550
contact@kysmollara.de