As much as an organization’s values, people, and the planet guide its long-term strategy, the underlying North Star for companies will always come down to its financial strategy. A financial strategy, in the simplest terms, is a roadmap for your organization’s current and future savings, spendings, and investments.
How Does a Financial Strategy Eliminate Risk?
As a business owner or CEO, you take on a lot of personal and financial risk with your business. Let’s take a look at how strategic financial management can eliminate risk for you and your company:
Get a Head Start on Any Debt
While your company may have to borrow from time to time, there is no such thing as ‘good debt.’ As much as taking a loan can help expand your business, debt needs to be managed. Without the right strategy in place, debt can be detrimental to your business.
A good strategy can also prevent you from taking a loan that does not have rates and terms that are attractive and fit your business’s long-term goals. Don’t be at the mercy of interest rate jumps.
Specific Types of Risk You Haven’t Thought About
Every business and industry is different, and each assumes different types of risk. A retailer, for example, would probably want to insure merchandise and inventory. What about the risk of property damage? Or risk of storms or fires? A comprehensive strategy will take into account these overlooked risks.
Anticipate Financial Risks Before They Happen
It’s easy to predict cash flow when the market is doing well. In a recession, however, it is painfully obvious if your organization does not have an overall financial management strategy. A cash flow analysis will take into account different variables such as work in progress, accounts payable, and inventory. This forecast helps businesses anticipate when cash is leaving the account and when cash is predicted to come in.
Saving and Investing
Having a financial plan will help your organization stick to its saving and investing strategy, which in turn brings you closer to your goals. An automatic saving and investing strategy forces the company to save on a consistent basis.
Facilitates Continued Growth
Not only can a sound strategy eliminate risk, but it can pave a way for your organization to grow in the coming years. Whether growth means spreading to new markets, hiring more employees, or moving to a new space, these are events you’ll have to plan for. You can’t grow your business without a steady and measured cash flow.
Where to Start
So now that you know the importance of getting your financial ducks in a row, where do you begin? If you have an internal financial expert, talk to them about what they need from you in order to put together a comprehensive strategy.
Not all companies feel the need to have an in-house finance department or expert, and you shouldn’t hire an internal employee just for this. Instead, you can hire a qualified financial advisor or outsourced CFO for help. They will assist you in making sure your company’s goals, mission, and financial strategy align. The future of your business is certainly worth it (not to mention your peace of mind).
Financial strategy development is necessary for business owners and CEOs who want to eliminate risk.