Factor influencing Financial Decisions

In financial management managers decisions in the light of three corporate decisions, Investment decision, financing decisions and asset management decisions. Manager should be judicious and visionary to take such types of decision. Factors influencing financial decisions are discussed in two different ways. These are:

1. Internal Factor.
2. External Factor.

*Internal Factors are:

1. Nature of business.
2. Size of business.
3. Structure of business.
4. Structure of assets.
5. Possibility of earning consisting profit.
6. Economic life of business.
7. Legal structure of business.
8. Regulatory of loan contract.
9. Approach to the management.
10. Business cycle.

*External Factors are:

1. Economical conditions.
2. Tax policy.
3. Government control.
4. Capital structure and financial market.

Internal Factors:
Internal factors regarding financial decision are very crucial for the future of business. Internal factor dynamics consist the all significant elements to boost up the total organization financing policy. Some internal factors which are the influencing the financial decisions are:
1. Natural of business: Natural of business impacts on financial and dividend policy decision. Is the organization retain the money or declared the dividend to shareholders depend on the nature of business.
2. Size of Business: Large size of organization invests more money to acquire fixed assets due to its huge capital. But sole proprietorship firm cannot do same.
3. Structure of assets: Structure of assets is another element to receive finance from the financial institutions. So firm should keep both long term and assets for enjoy financing from the possible sources.
4. Economic life of business: people keep faith on old business entry rather than newly formed entity. That’s why possible investor invested money to the old one. The newly formed firm declared progressive policy for the investor.
5. Legal structure of business: Legal entity of the business is another phenomenon to deliver finance decision. Sole proprietorship firm cannot finance its else from the stock market.
6. Regulatory of loan contract: To receive loan from the financial market and pay its interest is another influential factor of financing decision.
7. Business cycle: It’s a life cycle of a business. In different stage it reflects differently and decision has according to this stage.
8. Approach to the management: Is the management approach is aggressive or conservative towards the business decision is another important factor of financing decision.

External factor:
Business firm cannot be alienated from the society it is an integral part of the society and its other sociological parameters. External factors influencing the financial decisions are-
1. Political and economic condition: Government stability, political and business ethics, economic stability, inflation, degree of international indebtedness, financial structure, level of the import restrictions, remittance restrictions are the significant aspects of external decision making.
2. Tax policy: Tax policy heavily influences the local and foreign investment decisions. Strict tax policy discourage investment on the other hand tax incentive, tax exemption and invest allowance and easy tax submission fuel the investment.
3. Capital Market: Strong money and capital market provide money with less cost and financing form the stock market can influence the decision also.