Corporate finance sounds like a department in a large company. It is better understood as a set of decisions that every business makes, whether or not anyone in it uses the term: what to put money into, where that money comes from, and what happens to the profit once it arrives. A company with two hundred employees and no finance director still makes all three decisions, usually implicitly, and usually without ever testing them against an alternative.
The three questions
Everything in the discipline reduces to three questions, and they are worth stating plainly because most business decisions are one of them in disguise.
- What do we invest in — a new line, a second facility, an acquisition, a market entry — and what return does it have to earn to be worth doing.
- How do we fund it — retained profit, bank debt, new equity, a partner — and what does each of those cost, in money and in control.
- What do we do with the surplus — reinvest, pay down debt, distribute to owners — and on what basis do we choose.
A company answers these every year by default. The value of answering them deliberately is that the alternatives become visible: the second facility competes with the acquisition, the bank loan competes with the minority investor, and the comparison can be made before the money is committed rather than after.
Valuation runs underneath all three
Each of the three questions rests on a view of what something is worth — the project, the target, the company itself. That is why valuation is the first piece of work in most corporate finance mandates, and why a defensible valuation range is more useful than a single number. The range shows which assumptions carry the weight, and those assumptions are usually where a negotiation is actually won or lost.
Funding: equity, debt, and the ground between them
Debt is cheaper and it is repaid on a schedule that does not care how the year went. Equity costs more and shares the risk, but it dilutes ownership and brings a shareholder with expectations of their own. Between the two sit mezzanine capital, convertible instruments, vendor loans and minority investments with defined exit rights, and the practical work is matching the instrument to the cash the business actually produces rather than to the cash the plan projects.
Buying and selling
Mergers and acquisitions are the visible part of corporate finance, and the part where process design has the largest effect on outcome. On a sale, the number of credible bidders sets the price more reliably than any valuation model. On an acquisition, the discipline is in defining what the deal has to achieve before a target is chosen, and in walking away when the price stops matching that.
Capital structure and refinancing
A capital structure is a set of decisions taken years apart, often by different people, under conditions that no longer hold. Short-term facilities that were meant to be temporary get rolled indefinitely. Debt is held in one currency while revenue arrives in another. Maturities cluster in the same quarter. Reviewing the structure while the company is performing is inexpensive; reviewing it during a covenant discussion with a lender is not.
When a private company actually calls someone
In practice, owners engage a corporate finance adviser at identifiable moments rather than as a matter of routine.
- Succession is approaching and no member of the next generation intends to run the business.
- An unsolicited approach arrives from a competitor or a fund, and there is no way to judge whether the number is serious.
- An investment is too large for the balance sheet and the bank has said no, or said yes on terms that transfer the risk.
- A shareholder wants out, and the remaining owners need a way to price and fund the exit.
- Expansion into another market raises a build-or-buy question with no obvious answer.
- A larger company proposes a partnership, and the governance terms matter more than the headline.
What these share is that each carries a decision that is hard to reverse and difficult to price from inside the company. That is the point at which an outside view earns its cost, and it is also the point at which most owners have already spent months deciding informally.
What an adviser adds
An adviser brings a defensible valuation, access to counterparties beyond the owner’s own network, a structured process that creates competition rather than reacting to a single interested party, and the negotiating distance to press on terms without damaging a relationship the owner has to live with afterwards. The practical benefit that owners mention most often afterwards is simpler: the management team kept running the business while the transaction was run by someone else.
Where to go next
- Our corporate finance services
- Sectors we cover
- How to value a business
- Financing growth: equity or debt?
- How to sell a company
- How to buy a company
If one of the trigger events above is on your horizon, the useful conversation happens before the decision is taken rather than after. It costs nothing and it usually changes the range of options still available.