Think of a financial strategy as a route planner on a road trip, with that road trip being your business journey. Sure, you could just drift on a magical mystery tour, taking a right turn here and a left turn there and seeing where you end up. These days however, going down dead end roads are a luxury you probably can’t afford anymore and whilst it’s not a race, you can still enjoy the ride, heading in the right direction. A financial strategy is something that ensures that your business does exactly that.
?Where do you want to get to?
Knowing your end goal is key. When you’re just starting out, thinking about what you want to achieve can seem a long way off, but it’s important. Set long and short term goals. These could be a mix of sales targets and profit targets. You may have ideas of who you’ll want on that journey and how alliances and partnerships will be formed. You’ll need to forecast the costs that you’ll incur by projecting a good six, twelve or even twenty four months into the future.
How are you going to finance your business?
Once you’ve got a plan, the chances are you’ll need to spend and invest to accumulate. This could be hiring the right sales person to drive revenue, investing in tech or sales platform, or a critical piece of machinery. Whilst some businesses can grow organically by reinvesting profits back into the business, this method is often slow and steady. If your product is time sensitive and your market competitive, you might need to be quicker, in which case equity or loan financing might be a better option.
?Best practice promises
The best businesses that I come across are those who have a strong set of business promises – or policies. These can include a Remuneration Policy, such as how much a business owner is going to pay themselves, or a Dividend Policy, laying out proposals on rewarding shareholders for their investments. If your business is a limited company, you may be the only shareholder at the beginning, so this is for you too.
One of the best policies a business can have is a Reserves Policy. In short, this is a commitment to keep an amount of cash aside to cover a number of months running costs. It is businesses with a reserves policy of say three to six months who will be least panicked when the unexpected happens.
?Control and managing finances
A good financial strategy will say how money moving in your business is controlled, how you measure success and how often you “check in”. Start a regular habit of looking at your figures, for example an accurate profit and loss statement,(which can be achieved by getting a good book-keeping process in place) as well as balance sheet and cash flow forecasts which make up a suite of key documents. (See the A-Z to demistify these). Check in with them regularly to make sure everything is on track.
?Consider the bad things that could happen
A good financial strategy will consider risks and how to minimise them. This could be as simple as ensuring that the correct insurance is in place, or consider what might happen if key people couldn’t work or left the business. It might also be about developing different income streams so not all eggs are in one basket. Whilst some risks will apply to all businesses, there will be others that are very specific to yours. Give yourself the time to consider all the things that could happen.
Regularly review your finance strategy
Your finance strategy isn’t something you do once and then file away. It should be regularly reviewed and assessed for relevance and updated. The most successful businesses will be easily able to adapt and pivot and your finance strategy should give you the freedom to explore potential opportunities whilst making sure they don’t cause distractions. Giving time to your finance strategy on a regular basis will mean that the you’ll be far more likely to get to where you want to be and the journey will be far way more enjoyable!