Financial strategy is the process of understanding and defining objectives, policies, and attitudes that support those objectives. Financial strategy for business includes planning, forecasting, budgeting, and investment decisions. The Finance function must create financial plans to ensure an organization can meet its future financial obligations. This post describes the steps to make your company’s financial plan, listed as follows:
Review your strategic plan
Financial planning must be done in light of the company’s strategic plan. The CEO and CFO should review the strategic plan and assess how their financial resources will help achieve the goals outlined in the financial strategy. The strategic plan is a high-level document that defines how the business will compete against its competition, its overall growth objectives, and what resources are needed to achieve those goals. The plan will also indicate where the company expects to increase its market share and how it plans to do so.
Develop financial projections
To make financial projections, budgeting and forecasting are used. Budgeting looks at expenses over some time (usually one year) and forecasts the income for that period. These are called forward-looking statements to make predictions about future events. The estimate is based on current trends and the company’s expectations of future performance, whereas planning is more concerned with what will occur in the immediate future.
The purpose of financing is to secure the resources (money or equity) necessary for the business’s success. It is a term used to describe a loan, granting of credit, or grant that allows a company to obtain financial resources. Finance departments must be able to manage the business’s cash flow to meet its obligations, which includes providing adequate capital for projected operations. A company should also be able to handle any unexpected expenses and unexpected sales.
Plan for contingencies
In current economic conditions, the financial department must understand the risks associated with the business. For example, if a new model that has been in development for an extended period is not selling well or is causing an unexpected loss in revenue, it will be necessary to develop and implement contingency plans. Contingency plans are strategies used to deal with unexpected situations; they are put into place before an emergency occurs.
The Finance Department must monitor the progress of all projects, subsidiaries, and divisions to ensure that the organization is on track to meet its financial objectives.
When developing financial projections, companies should seek the advice of an expert who can advise them on what assumptions to make and how to determine which variables need to be included. Financial experts can also help a company identify opportunities for strategic growth. At Everest Capital Group, we work with your company to help you create financial strategies tailored to meet your company’s needs. We also provide board-level consulting to help your organization achieve its economic objectives. Contact us today for more information about our services.