Page 3: Maintaining competitive advantage
Any market which is experiencing rapid growth is likely to be very competitive. For a business to operate in a competitive market, it needs resources. Whether these are physical resources such as property, equipment and materials, or less tangible human resources, finance is required to pay for their use. Therefore, the management of finance is inseparable from the management of the business as a whole.
Businesses generally use a number of financial sources, such as:
- individuals – founders, employees
- organisations that specialise in venture capital for businesses
- banks and other financial institutions
- the government
- profits retained in the business.
Investors of any category do not make investments with the same expectations. The type of investment they make reflects their interests. For example, investors who only wish to tie up their money for a finite period of time may invest in an incorporated business, whose ability to trade remains unaffected by any changes in ownership. Shareholders receive benefits from the profits earned in the form of cash dividends and an increase in the value of their shares.
Incorporated businesses are those legal identities, quite separate from their owners. The capital contributed by the owners of the business is divided into shares. Hence an owner is called a shareholder. Shareholders have limited liability, as the maximum amount that they can lose is the amount that they paid for the shares, rather than their personal wealth if the firm should become insolvent.
Though Freeserve was established within the Dixons Group plc, the strategy for the business has been to give Freeserve its independence. Its launch on the stock exchange means Freeserve can obtain finance independently and provide opportunities for its shareholders. On August 2, 1999, Freeserve became the first Internet brand in the UK to obtain a listing on the London Stock Exchange, Techmark and NASDAQ.