A finance strategy is an important component of the overall strategic plan of a business, outlining how the business plans to arrange and manage funds required for its operations to meet its objectives.
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Keith turner quick silver funding solutions - finance strategy can ensure business growth
1. Keith Turner QuickSilver Funding Solutions - Finance Strategy Can
Ensure Business Growth
A finance strategy is an important component of the overall strategic plan of a business,
outlining how the business plans to arrange and manage funds required for its operations to
meet its objectives.
A solid finance strategy is vital to the success of any business, especially if the business is in
its growth stage.
Why Businesses Require a Finance Strategy
A period of growth can be an exciting time for any business. Sales are on the rise; your
financial statements are starting to show promising figures of profit, and your brand is
becoming stronger in the market.
Yet, managing growth is no easy task – you need to have enough resources to keep up with
the increased level of activity so that it continues. This requires keeping a strict check on
your finances.
With growth comes to a change in cash flows as a business is likely to incur several
unplanned costs such as frequent wear and tear of equipment. There is also the need to
acquire additional resources such as human capital or perhaps new machinery as well as
increased production and inventory costs.
2. It is essential to make forecasts of upcoming revenues and costs in order to avoid running
into financial problems. This is why a sound financial strategy is essential in ensuring sound
management of the company’s financial affairs during the period of growth.
Incorporating Financial Strategy into a Business
Produce Reliable Forecasts and Budgets
Finance strategies are forward-looking — they help a business plan for the future. Using
current data on performance such as Profit and Loss statements, balance sheet and cash
flow statements; forecasts are made for the future performance. This requires accounting
for any changes expected in revenues and costs in the future.
This information is very useful as the management can perceive where the company stands
in the industry. Forecasts depict the financial position of a business and help in decision-
making.
A finance strategy also helps with budgeting. While a forecast shows what is expected to
happen in the future, a budget is the organization’s plan for the future – what it wants to
achieve in terms of financial performance.
Budgets are useful because they provide a benchmark against which actual performance
can be measured. Actual results can be compared with the budget and corrective action
taken in a timely manner to ensure the business is headed in the right direction to achieve
its growth objectives.
Helps Arrange Funds Required For Growth
Market penetration — involves increasing market share in the existing market with existing
products. As more products need to be sold, an increase in production is likely to be
required, increasing production-related costs.
Market development — finding new markets for existing products. The new market can be
a new geographical area or a new group of customers.
Product development — involves introducing new products in existing markets. An
investment in Research & Development may be required to come up with a new product
based on market needs.
A finance strategy helps raise funds based on the business’s needs. The key is to match
finance to the nature of expenditure. For short-term needs such as working capital, short-
term finance, such as arranging a line of credit, may be appropriate.
3. For longer-term projects such as the acquisition of new machinery, long-term finance should
be sought so that the business can pay off the loan as the project starts generating returns.
Effective Cashflow Management during Growth
What is the main cause of failure when it comes to managing funds during growth? It’s
definitely improper cash management.
Growth brings with it an increase in revenues, but you will also see a rise in expenses with
the increase in activity level. The problem is, costs often rise before revenue does as shown
in the graph above.
So, how does a finance strategy help ensure a cash crunch is avoided during growth? Here
are a few ways:
Effective receivables management – If you must offer credit, make sure the credit period
isn’t too long, and it is highlighted when offering credit so that customers know by when
they have to pay. Regular follow-ups and reminders should also be sent, with discounts
offered to encourage early payment.
Effective payables management – The business should try and secure maximum credit
periods from its own suppliers, to delay cash outflows.
Inventory management – Holding excess inventory means extra costs (cost of storage plus
risk of damage and obsolescence), so inventory levels need to be minimized.
4. Keeps a Check and Balance to Facilitate Growth
Most strategies require a constant review of actual results to ensure that the financial goals
are achieved. When a business is at the initial stage, it becomes easy to get caught up and
focus so much on sales and revenues that you forget about things such as internal controls
and keeping a check on variances.
For instance, when demand increases, all that a business cares about is procuring raw
materials on time and converting it into finished goods to meet the demand. In such
situations, control must be maintained in order to succeed. What if materials have been
bought at a higher cost than usual or due to work pressure, errors and wastage have
increased?
A good financial strategy will keep a check on such issues as actual results are compared
with budgets on a periodic basis, and any variances investigated to ensure the business
generates maximum financial benefit from growth.