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Expert Answers to Biz Questions
Listen in! Pick up some expert advice to a reader's question that we selected from CyberSchmooz.
Looking Ahead: Investment Banking Basics
Business growth. It is the eventual goal of every entrepreneur. And while the road to reaching this goal is one that takes a long while, depending on how you’re able to manage your business and how lucky you are, there are those that actually achieve unprecedented growth in a short span of time.
It goes without saying that businesses of different sizes require different manners of management. The internet is rife with guides on how to manage a small business and to help facilitate its growth, but what about that rare instance when you might suddenly strike gold?
It’s almost like winning the lottery. And very much like the aforementioned scenario, there’s a huge risk in losing everything you have just gained if you’re unable to make the right decisions. Managing a few hundred dollars is significantly different from having to manage thousands.
The risks, as well as the rewards, scale proportionately and suddenly you find that you’re playing a totally different game. The rules may be relatively the same, but the stakes are that much higher. So, how exactly do survive in these deeper waters? You learn to swim beforehand, of course.
If there’s one aspect that never changes in business, it’s dealing with banks. And when the game changes this much, it would serve you well to know what you’re going to be dealing when you interact with people who specialize in investment banking.
But First Off, What Exactly Do They Do?
In the basest of terms, investment bankers help large companies manage their money. They basically act as middlemen that help corporations interact with investors and vice versa. They also function as financial advisors, especially when helping a corporation decide on sales and trades.
These are some of their most common functions:
Company Restructuring
Investment bankers help provide foresight on whether a company needs to change its infrastructure in order to save it or to help boost its profitability. Restructuring a company costs a significant amount of money and it goes without saying that the gains need to far outweigh the costs in order to justify the uprooting of a system that’s already in place. A good example of a company restructure is when Toys ‘R’ Us closed 182 stores as part of restructuring.
Assisting in Mergers and Acquisitions
When a company merges or acquires another company, they also take on that company’s liabilities. And when you’re dealing with this much money, a bad merger or acquisition may have catastrophic results if you fail to properly foresee how the transaction is going to fare. Investment bankers will help make the entire process smoother and will warn against bad investments should they arise.
Providing IPO Assistance
When a company needs to raise capital in order to support its growth, they will often opt to sell shares to the public. An Initial Public Offering can also help add credibility and prestige to a company, especially when it’s meant to make the company more appealing to future lenders.
Some lenders are more likely to give loans if they know that a company has a diversified shareholder base.
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