Self-financing is what?

Self-financing is what? What is the essence of this process? How is it realized? What is the basis for its implementation? What useful role does self-financing play in the development of the enterprise? How important is it for its stable operation?

general information

Self-financing is the provision of funds at full disposal, which allow to provide work, to develop production and infrastructure, to perform certain work on the introduction of innovations, to carry out technical re-equipment, to increase salaries to employees in proportion to their labor contribution. What does it give?

Self-financing of the enterprise significantly increases the role of depreciation as a source of reproduction. In such circumstances, its share among capital investments also grows . But still its final size largely depends on the structure of production, growth rates, fixed assets, their value and depreciation rates. Self-sufficiency, and with it self-financing of enterprises are the most important principles of the existence of modern firms and organizations.

Requirements of modern conditions

Now, with self-financing for successful activities in the future, enterprises are obliged to ensure their production, scientific, technical and social development. In addition, it allows the state budget to conduct a high-quality concentration of funds with subsequent application of relatively socially important areas - support of the population, assistance in restructuring the economy, development of scientific and technical potential.

The necessary conditions for self-financing of an enterprise are the orientation towards the creation and sale of products in which consumers are interested, and which can compete with the goods or services of competitors. In addition, one must also be able to adapt flexibly to the constantly changing conjuncture.

What happens in normal mode?

When there is self-financing of the enterprise and full economic calculation, the subject of the economy independently makes decisions on a very wide range of issues, including planning, incentives, financing, technical and social development of production and many others.

Since they are also responsible for the resulting result of actions, they are most interested in taking reasoned and competent decisions that are aimed at maximizing resource use and realizing the full potential. Self-financing is an integral part of independence.

What and how in reality?

Let's look at a small example with a bank. A financial institution appears, which starts accepting money from the population for deposits and issuing them for loans. If self-financing works, that's good. But here there was a skew, or someone from the top management cheated, and money was catastrophically not enough. In other words, the principle of enterprise self-financing is not being implemented.

In this case, in order to prevent losses from ordinary investors, the state introduces an interim administration. It sorts out administrative functions on itself and deals with the elimination or at least minimization of negative consequences. And the bank itself does not belong to itself (the owners), because it can not perform the required set of functions.

What do you need to succeed?

Earlier it was mentioned that in order to achieve profits, it is necessary to focus on customers and produce products that can compete with what is already on the market. But it's all based on a foundation whose name is equity. He is the foundation for the start and the "inspiration of life" in the enterprise.

But still, financing activities solely at the expense of own capital does not justify itself. This is especially true for those firms whose production is seasonal. At the same time, own capital is necessary, because it is the basis of independence and independence. True, you should always consider that it is invested on a long-term basis. Moreover, it is also at greatest risk.

At the same time, the amount of equity is one of the most important parameters for creditors and investors. Thus, it is believed that the greater its share in the total (and with respect to borrowed funds), the better the characteristics. After all, the presence of a significant (in percentage and quantitative terms) equity protects creditors and investors from potential losses and, therefore, reduces the risks of losing everything.

Conclusion

Of course, a lot depends on the enterprise, but not everything. To determine the state of affairs, the self-financing ratio is used. In addition to the company itself, it is influenced by the tax policy. It can lead to a shortage of working capital and an increase in investment risks.

If you want to improve the performance of the subject of economic activity, you need to take advantage of what offers analysis tools. It allows us to calculate the self-financing factor on the basis of statistical and accounting information in order to present the current state of affairs in the enterprise digitally and to evaluate the current development trends. Already on the basis of these data it will be possible to be guided by what the development and promotion strategy should be based on.