The key to a company’s financial success is to carry out a good financial strategy. Conducting strategic analysis, deciding the time frame, and investing part of the benefits are steps to follow.
To succeed in business, it is not enough to offer a good product or service. All companies must have a powerful financial strategy that supports all the decisions that have to be made related to finances. With this in mind, planning is as important as implementation. Here are some key financial strategies that will ensure your company is a success no matter the size of the products or services it offers.
Analyze the financial strategy
To plan a good financial strategy, you must first carry out a strategic analysis.
This step is very important because there is no single financial plan. Apart from being detailed and organized, planning must be done in a personalized way to meet the needs and objectives of each particular company.
That is why you have to consider a series of variables, starting with being clear about your company’s risk profile. It is also important to analyze the following key aspects:
- The current limitations and resources of the company.
- Working capital: liquidity and solvency.
- Cash flow forecasts.
- The profitability of investments.
- The level of indebtedness.
- Funding sources.
- The risk of the credits granted to the clients.
- The objectives to be achieved. When preparing the list, these objectives must be achievable and measurable.
- The time frame in which this strategy will be framed (the short term must be avoided). This last point is important since financial strategies differ depending on the term.
All this information is easier to obtain when the data is up to date and the management, both financial and documentary, is digitized. The data is categorized so that, in a matter of seconds and at any time, you can control that the different departments comply with the assigned budget or study all reported expenses and payment methods, among other advantages.
Design financial strategies based on the term
As we said, the time frame is one of the keys to success. If your company is going to opt for long-term financial strategies (the most recommended), you must take into account three aspects:
The investment: It must be aimed at increasing the value of the company. Strategies can be offensive, defensive, redirecting, and survival. Depending on the one your company has raised, investment decisions will be oriented either to growth or to divestment. In the first case, you can choose between two types of growth:
Internal growth: It may be, for example, expanding the business because demand has increased and supply is no longer sufficient to cover it.
External growth: One strategy would be to eliminate your competitors, for example, through mergers.
When it comes to divestment, this strategy applies when the company is only focused on getting ahead. You may choose to keep the assets or sell a portion, so you don’t have to close.
The financing structure. The strategy adopted to choose the appropriate source of financing must correspond to the risk that the company is willing to assume.
The retention or distribution of profits. In this case, the strategy will depend on variables such as the possibility of contracting long-term loans or obtaining more profitability for the available assets.
What can be done in the short term?
For their part, financial strategies for the short term should focus on the following aspects:
- The working capital. Finding the right risk-return ratio is important. One of the three basic strategies must be followed: aggressive (high risk), conservative (low risk), and intermediate (seeks a balance between liquidity and profitability of liabilities).
- The current liabilities. We are talking about the current financing of a company. The strategy ranges from taking advantage of discounts for prompt payment to a financial institution to apply for a loan.
- Efficiently manage cash on hand. It is necessary to carry out three fundamental actions to increase the liquidity of the company. You must reduce inventory, try to collect as soon as possible and delay payments as long as that does not mean paying commissions or giving up discounts for prompt payment.
Follow all the steps to implement the financial strategy in large companies
Once the planning phase has been passed, it is time to fully enter into the implementation of the financial strategy. But you have to do it carefully, taking all the recommended steps. When the strategy is carried out progressively, better results are obtained.
You cannot forget to hold regular meetings with your company’s accounting and finance managers to make sure that everything is going according to plan. Communication is essential, almost as much as monitoring for progress.
Review the financial strategy
You need to make revisions frequently in case you need to make adjustments. Only then can it adapt to the needs of the company in real-time.
How often do you have to carry out these reviews? At least once a quarter. And, of course, when there are changes in the objectives set in the planning phase or there are important changes in the company.
Make profitable business profits
The last point has to do with the profitability of profits. You can always set aside a part that you will not need in the short term and invest it. Swing trading (ideal for more conservative), derivatives, or investment value (the strategy did succeed Warren Buffet) are some options. But in this case, better to go to the experts.
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