In our last blog, we talked about why your business needs financial projections. Financial projections are an important part of financial planning. Yet, as with any type of goal setting, the most successful people don’t just plan, they strategize, examine all the angles of their goals and their environment, and continually shift their strategy as changes occur. If you are not making financial strategy a key part of your business, your company is not as successful as it could be.
What Is Financial Strategy?
Financial strategy is different from financial planning. Financial planning is like steering. If you run your business without a plan, it will go in the direction it wants to, for good or ill. Financial planning is the process of steering it in the direction that you’ve decided you want to go.
Financial strategy is using the company’s resources to achieve its financial objectives. If planning is the car’s steering wheel, then strategy is the road map in the glove compartment. Planning will keep you on the right road, strategy will get you where you want to go. This may seem like it’s splitting hairs, but strategy involves more financial complexity and careful use of resources.
Steps in Strategic Financial Management
First, you will need to clearly define your company’s goals, assess its current and estimated resources, and make a plan for using those resources to their best advantage. Unless you are a one-man outfit, you need to involve your accountant or financial manager, key employees, business partners, or your board of directors in your vision-making and goal-setting processes. Their input is valuable. Listen to it.
You will also have to have important financial information at hand, including revenue and expenses, investments, capital budgeting, and cash flow. You should regularly have your business valued as well. From there, you can collect information on your industry, competitors, market opportunities, and potential investors. This is what you’ll use to create and implement your strategy for success.
Financial strategy is useful for businesses of all types from small startups to large corporations, just like every driver on the road can benefit from having a map. The information you gather will help you identify pitfalls and go around them or decide what a reasonable goal is with your available assets.
Developing Your Strategy
How do you take all of the above financial data, and align it with your company’s goals? Very carefully. This is the most crucial part. You have to take your objectives and put them into order, setting realistic goals and adding benchmarks so that it will be clear over time if you are meeting them or if you need to change direction. These steps and tasks are guidelines, like markers on the highway. When you meet them, it will give you confidence that you are going in the right direction. You should regularly review your benchmarks and your financials so that if you go in the wrong direction, you will make adjustments quickly and not get bogged down in some dead end.
Seeking Help from Experts
Larger companies will have access to more expert advice. These are the people who can help you determine if you are meeting your goals quickly enough and, if not, help guide you on how to get there. Smaller companies may have to make do with a bookkeeper or hire consultants periodically. Large companies will have board leadership, financial advisors, or a CFO on staff.
You may not think it’s worth investing in a team of consultants, but the knowledge that a good financial advisor or manager has about financial strategy can save you years of headaches and put you on a quicker path to meeting your goals. They will help minimize your risks and get access to the capital you need for your plans as well.
A well-thought-out financial strategy can help you meet objectives for your company that you may not yet know that you have. It can keep you ahead of your competitors and away from dead-end decision-making. In the long term, it will increase your profitability and help you use debt to your advantage. It’s the road map for your company to get to the top, and you get to create it.
If you have questions about financial planning, financial strategy, or any part of the process of making your company more profitable and competitive, call us at Prometis Partners. We are here to help you in this process in any way we can.