Financial management is an essential part of every business whether small, medium, or big. It is healthy to develop some financial strategies for your business. Contrary to the popular belief, financial management goes beyond handling money, business account balancing, bookkeeping, also other money handling related practices. There is a reason why it is important for entrepreneurs should put their finances in order at all times.
An effective and efficient financial management creates a difference between the business that moves advances up the corporate success ladder and the other that fails at the first rung of the business ladder.
This post also comes with lots of financial strategies that all businesses need to apply to experience continuous growth and success.
What is financial strategy?
A financial strategy is either a short- or long-term plan that an organization creates to maintain its profitability and growth.
Without a corporate financial strategy, most companies are more like leaves in the wind.
Going anywhere the financial tide takes them.
But with several effective strategies, any business will be able to withstand certain enterprise risks such as the global shutdown of businesses due to the coronavirus pandemic.
For a good financial strategy example, you will need to have a plan and also have a clear definition of your objectives.
This where you have strategic financial management.
The strategy includes all the financial management and cash details of the business plan, like income and also expenditures, investment decisions, cash management, and capital budgeting.
Types of financial strategies
For a business or an organization to achieve or maintain good financial standing, so they would have to know several effective financial strategies out there.
There are also several important types of financial strategies and each one of them works to achieve certain goals for an organization.
1). Cash Flow Planning
This is an essential type of financial strategy and planning.
The process where a company creates a forecast for both its long term and short term expenditures compared with its projected cash flow.
Therefore, this is an essential financial management strategy as poor execution can lead straight to bankruptcy.
2). Insurance Planning
Planning for insurance coverage is an essential type of corporate financial planning.
A lack of an insurance plan can also spoil your other financial strategies and financial management plans.
An insurance plan is designed to hedge against unforeseen circumstances.
3). Retirement Planning
Retirement is something everyone has to go through.
This is an essential financial strategy and planning.
In most cases, due to rising living standards and rising inflation, most people set up a financial and cash plan for a sustainable income during retirement.
This strategy hedges against having to compromise your lifestyle after you retire.
4). Investment Planning
For a company to achieve its revenue goals, it will have to create an investment plan that will work.
This investment could be based on savings or borrowed funds.
The moment that an organization has the money they need for investment; they can then approach a financial adviser.
There are different investment opportunities that they can invest in such as mutual funds, bonds, forex market, investment in gold, stocks, and fixed deposits.
5). Tax Planning
Having an effective tax strategy can help you to take full advantage of the money that you save.
There are lots of exemptions and benefits that are available in some countries for companies who pay their taxes.
There are end-of-year benefits and tax exemptions for people who pay their taxes regularly.
6). Real Estate Planning
The creation of assets in the form of lands is an essential type of long term financial planning.
Solid retirement planning or wealth creation can be achieved easily with real estate investments.
Real estate is a high return and low-risk investment option for investors.
Haven understood the different types of financial strategies, we can then create a combination of several types to achieve critical corporate objectives.
Financial strategies group work well as against having just a single one.
The following are the 10 best financial strategies that work:
1). Create a balance between personal and business goals
The first step which is also the most essential step in planning for your finances is to set up both long and short-term financial goals.
Most of the time, your business goals could end up clashing and interfering with your financial objectives.
Business goals such as planning to buy a new factory or to expand into another market can interfere negatively with some personal goals like your children’s college education or your retirement savings plan.
You could end up hurting your long-term cash success if you make one important over the other.
2). Try looking for different funding options
Most, if not all business ideas need capital to come to fruition.
The measure of the success of an idea depends on the ability of the owner to get enough cash to start.
Therefore, in most cases, the funding could come from selling off a property or your savings.
In most other cases, the owner may need to look for funds externally from financial institutions or friends/acquaintances.
People can get funds externally either in the form of an equity or a loan.
One other way to get funds is through customers.
Your customers/clients are one effective and inexpensive way to get funding for your enterprise.
If customers like your product, they might agree to give you money in advance for your services/goods.
Whatever the option for funding might be, so an entrepreneur needs to reduce the general capital costs by looking for different channels to finance his company.
3). Control cost
No matter how solid your idea is, if it does not generate any profit, it could fail.
Lots of organizations are currently bankrupt and failed because they are unable to generate sufficient revenue to help cushion their expenses.
To control cost, there are lots of corporate techniques that are applied which aren’t just reducing spending or maximizing your revenue.
4). Managing liquidity
Liquidity is the state of having cash or liquid assets.
To continue their healthy growth, businesses need cash.
Most businesses try to maintain liquidity by employing various techniques.
Why investing and saving are such huge and attractive options, it is also essential for an organization to keep some cash in hand.
Businesses need cash to take care of recurring expenses such as paying salaries, vendors, and creditors.
One key component of efficient managing of your cash flow system is maintaining a money buffer.
5). Managing taxes
It could be such a painful and tedious task to file and pay up your taxes.
Most tax laws are pretty complex.
There are lots of hidden tax events, so you will need to read between the fine prints.
If you know your taxes, you could save lots of money.
Technically, the amount of tax you need to pay will depend on the legal status of your company.
Only a tax lawyer or an accountant can help you explain your status.
You will be needing one of these to maintain a clean business tax record.
To effectively handle your taxes you should consider using professional software or the services of a tax expert.
So, managing your taxes effectively is a core financial management practice.
6). Managing risk
We have different forms and shapes of risks – there is the operational risk, disability risk, business risk, and others.
For any good executive or business owner, it is a mandatory skill to be able to control risks coming from the different parts of our business.
Risks such as external threats are capable of stopping you from expanding and achieving profitability.
However, if these risks are successfully managed, this could lead to immense opportunities to help you grow in the long term.
There are several areas where risks or business threats can arise from.
This could be your competitors, rising interest rates, disability, sickness, injury, and so on.
7). Creating a safety net
To protect the wealth of your business, you will be expected to create a safety fail-proof net.
Some entrepreneurs tie up a huge quantity of their company’s assets to their businesses.
This means that any economical change that is capable of negatively impacting that particular industry will also negatively impact their wealth.
Most entrepreneurs use asset diversification as the best method of creating a solid and fail-proof safety net.
Most owners will be able to significantly minimize the general risks to their portfolios when they invest in a wide range of non-related sectors, assets, and ventures.
8). Get a professional financial advisor
One common myth in the business world is that only large-scale and medium-sized corporations need a financial advisor.
Anybody with serious money objectives and financial goals needs an advisor.
Sometimes, it is immensely important to go through your entrepreneurial journey with a guardian, knowing that if you encounter some difficulties.
You can also rely on expert judgment to move over obstacles.
If you care about the financial management of your business, then you will get an advisor.
Most of the time, it is very helpful to have a professional perspective and guide when trying to achieve your money objectives.
Most people and companies seem to struggle when trying to create the right strategy as well as the steps to help them attain their goals.
If this situation applies to you, you might want to consider consulting a professional financial advisor.
A good financial advisor will help you to check your current financial management system.
They will then help you set achievable goals based on the resources that you currently have.
One important benefit of getting an expert financial advisor is the fact that once you are off-course with your strategy, they can assist you in getting back on the right path.
9). Focus on high-impact and low-cost marketing options
One constant business process that most businesses perform is marketing, advertising, and promotions.
While this is such a good practice for most companies, it is wise to go about it the right way.
Depending on your financial chest, not all marketing strategies are good for you.
It is easy to waste money on inefficient and ineffective marketing.
So, you should always be on the lookout for high impact and low-budget marketing strategies.
This will help you grow your business.
Therefore to ensure that you are making use of proven ways to promote your business, you should try out several marketing tactics and see which one works best.
Before you can think of using them as part of your marketing strategy.
You could get an internet marketing company to help you increase your brand engagement online.
There are numerous tools and also low-cost agencies that you can leverage on the internet to increase your brand awareness.
10). Have multiple income sources
It is a universal truth that some of the biggest and highest-earning companies in the world have multiple streams of income.
You can find them in different high earning industries and sectors.
To verify this truth, just search some of the world’s richest men or the highest-earning businesses in the world, therefore you will see that they play in a wide range of industries.
This is what successful businesses do to rise above the financial crisis.
Creating multiple cash flows for your business is never a bad idea.
With your business, you could inadvertently run into a financial crisis with your income at any point in time.
So, if you have a diversified portfolio, there is a slim chance that you will run into financial difficulty.
There are lots of uncertainties with entrepreneurs like there is to life.
One of such an unpredictable uncertainty is the outbreak of the coronavirus which caused a global shutdown of businesses and all social activities.
Having several income streams helps cushion your total earning power from taking a major hit when there is a crisis.
One of the most reliable team financial strategies that hedge against risks is financial diversification.
Whenever a risk threatens to happen to your company, having multiple income streams help hedge against the negative impact of such a threat.
Even if such risks occur, it can then be shared equally among the income streams to prevent your company from feeling the drastic consequences of any crisis.