In an ever-evolving landscape and ever-changing market economy, strategic financial planning has become a cornerstone for sustainable business growth and success. Underpinning that success is a company’s ability to maximise profits effectively.
In this article we’ll explore the concept of strategic financial management and planning, shed some light on how to use your business strategy to maximise profitability and leverage your financial planning to achieve your longer term business goals.
Financial Planning: Why does it matter?
Strategic financial planning involves a comprehensive process of aligning financial goals with overall business objectives. Without the roadmap to achieving your objectives with specific and realistic goals, it can be difficult to maintain momentum and monitor your progress.
Financial planning goes beyond routine budgeting and accounting. It’s about having a strategy that focuses on long-term success through meticulous financial and market analysis, clear forecasting and insight-based decision-making.
Crucially, your business strategy should not be reactive but rather proactive in anticipating challenges, capitalising on opportunities and building a robust financial foundation from which to build on your success.
Maximising Profitability: What, how and why?
Profitability is the measurement used to gather a business’s ability to generate earnings relative to its expenses. Net profit margin is a common way of calculating profitability, as is return on investment (ROI) and gross profit margin. Each of these measurements reveals a different aspect of profitability and can be used to inform your business strategy and financial management decisions.
At the end of the day, to maximise profitability you want to increase revenue while decreasing costs. This will lead to a larger surplus between the capital leaving the business and the capital coming in i.e., your profit.
Knowing and tracking profitability is essential for not just the financial health of the business but also for informing your strategic financial management decisions. There are many decisions to be made regarding innovation, investment, expansion and financial resilience–especially when faced with economic uncertainty. Without a strong grasp of profitability, it can be challenging to create a strong business strategy for maximising it.
Financial Planning: How to approach maximising profitability
Please note that the following information is general and generic in nature and should not be taken as financial advice. We recommend seeking a professional business financial advisor to provide tailored advice for your particular business, objectives and needs.
1. Set Clear Financial Goals
Defining financial goals that are specific, measurable, and realistic is the necessary first step. Knowing where you are headed will help you build a business strategy to take you there. Whether your goal is to increase sales to a certain level at a certain point in time, expanding market share by a specific date, or improving operational efficiency to bring costs down to a certain level by a certain quarter, clear goals set out the signposts for your strategic financial management.
2. Conduct Financial Analysis
Knowledge is certainly power in financial planning. The more thorough and comprehensive your financial analysis is of your current financial situation, the better positioned you’ll be to make the right decision to achieve your goals. Assess your revenue streams, your cost structures and pricing, and identify the key performance indicators (KPIs) that reflect either success or failure of your goals. Your analysis and the insights gleaned from the data will inform your financial decision making.
3. Assess Your Risk
Once you understand your business’s financial situation, the next step in your business strategy should be risk assessment and mitigation. There can be a wide range of financial risks to your business and they can vary in terms of severity, likelihood and vulnerability to mitigation. As you identify potential financial risks, develop some strategies to mitigate them. Many risks cannot be mitigated completely but with the right strategies and preparation in place can be ‘defanged’ considerably. Whether you’re facing market volatility, regulatory changes or unforeseen macro-economic events, proactive risk mitigation can help to safeguard your profitability.
4. Allocate Your Resources
An integral part of strategic financial management is the allocation of resources and investments. The idea is to maximise the return on your investment and make each unit of your resources as effectively deployed as possible. This might include anything from marketing campaigns to product developments, expanded staff or operational enhancements. At the end of the day, you’re looking to have the biggest (positive) impact on your business’s profitability as possible.
5. Roll Out Operational Strategies
With your business strategy laid out, now’s the time to implement the plan. Leveraging financial technologies to streamline processes, enhance accuracy and gain real-time insights can be critical in ensuring a seamless implementation. Remember to keep your employees trained and informed of both the goals and strategies to ensure they are prepared and empowered to help achieve the profit maximising objectives.
6. Monitor, Adapt and Improve
Strategic financial management is not something you can do and then set and forget. You need to continuously monitor performance and ensure you’re on track to achieve your goals. There are various robust systems out there to monitor financial performance against your set benchmarks. But monitoring is just the first step here. When conditions call for it, you may need to review and adapt certain strategies. A strong business strategy will be continuously improved upfront to make it as current and effective as possible.
Financial Solutions to Suit your Financial Planning Needs
Businesses can empower themselves to navigate the complexities of the financial landscape and fuel their long-term, sustainable growth through thorough and considered financial planning.
Part of a business strategy should be ensuring your company has access to working capital when and where you need it. That’s where our team of lending specialists come in. As the leading non-bank lender in Australia and New Zealand, we are best positioned to help tailor a flexible financial solution to help your business achieve its goals.