Financial management strategies

Every business needs a roadmap. Not only do you need to know your target audience and be clear about your unique value proposition, but you also need to have good financial planning. Without a financial plan, it is difficult for a company to be successful in the long term or to overcome obstacles that appear along the way. For this reason, before launching your business venture it is important to have a solid training, such as master in Business Administration or a bachelor's Degree in Business Administration, to acquire the fundamental knowledge of business administration and management.

The advantages of the financial planning process in business

Financial planning involves the preparation of a budget that includes the resources available to the business, in order to guarantee its economic stability and achieve the established profitability objectives. Such planning is essential for companies for several reasons:

1. It facilitates the fulfillment of business objectives, since it provides an economic roadmap based on the current situation of the company to determine the short, medium and long-term goals that must be met.
2. It reduces the risks of an economic nature, as it allows estimating the financial needs of the company throughout its life cycle, from its creation until its international expansion process begins.
3. Improves control over the finances of the company, its different departments and projects. Financial planning allows you to detect areas for improvement to promote business growth without putting your capital at risk.
4. It optimises the use of resources, since it allows the correct distribution of available capital, prioritising those strategic areas for business growth and key activities to achieve the objectives set.
5. It supports decision-making by providing solid financial data to detect business opportunities and weaknesses. Financial planning allows measuring the performance of the company and the invested capital to make the necessary adjustments in the budget.

Financial planning and management: The steps to consider

The financial planning process in a company setting is made up of four clear steps:

• Analysis of the current business situation

This first phase of financial planning answers a simple question: what is the current economic situation of the company? To form an idea, you must take into account the income that the business obtains by any means, from direct sales to interest from financial products, as well as the fixed and variable expenses that it incurs, from bank commissions to renting the premises.

You should also consider the financing that the business has and the amortisation of real estate and movable assets, without forgetting insurance, since these can act as an economic guarantee in case of unforeseen events with the potential to affect the survival of the company.

• Determine medium-term business objectives

The second phase of financial planning must answer another question: where will the company be in five years? It is convenient to establish annual objectives that help to distribute the budget, but it is also important to define goals for the following five years since these allow us to reach fundamental milestones to achieve the long-term financial planning objectives that imply a substantial change in the size of the company, its turnover and/or social recognition.

• Define the financial strategy

The third phase of financial planning answers the question: how to use the resources to achieve the intermediate and final objectives? In the short term, it is essential to take measures to guarantee the economic viability of the project, so you will have to prioritize liquidity, adjust costs and avoid a high level of debt. However, in the long term you can follow more flexible strategies that, without losing sight of liquidity, focus more on profitability and investment to stimulate business growth.

• Evaluate the results

The financial planning process does not end with the design of the strategy, it is necessary to monitor the results and verify that the planned objectives are being achieved. It is recommended to review the financial strategy at least every six months so that you can quickly detect any deviation from the plan and correct it by introducing the necessary adjustments.