A Step by Step Guide to Framing Financial Strategy For Your Business
The financial structure of a business is what gives a business direction. It dictates whether a business can spend on a certain asset, how much it can spend, and also how much profit it can bring in. Needless to say, the integrity of this structure has to be intact for a business to succeed long-term. This process of maintaining a sound business financial structure is known as financial health. However, the mistake that most people make is generalizing this term and ignoring specific details within a structure. In other words, having good financial health takes more than simply turning a profit.
It requires running and testing new ideas, making mistakes, and overall learning from those mistakes as quickly as possible. That is the process of maintaining good financial health in a nutshell. The reason these traits and components are important to know is that they play a huge role in framing a financial strategy. In regards to having a sound structure, a business can’t build one without having a plan to design one.
While all of these factors might sound overwhelming to manage, the reality is that many businesses fail due to overcomplicating these processes. To break down these processes into more manageable pieces, here are eight points to consider while framing a financial strategy for your business.
#1: Amount Of Workload
The first point to consider when coming up with a sound financial structure is workload amount. This can be measured through research workload, product demand, or any other factor that may help create your plan. An alternative way to measure workload is by using a business goal. For example, if your long-term goal is to expand into new territory, you can structure your financial strategy to help achieve that goal.
#2: Financial Obligations
Another point to keep in mind before creating a strategy is the financial obligations your business has. More importantly, it also benefits to factor in future financial obligations your business might have. Doing so allows you to allocate your business funds more efficiently throughout your processes. Not to mention, they are a necessary part of running a business. Ignoring them is virtually impossible from a financial standpoint.
#3: Business Emergency Fund/Insurance
One commonality all businesses have is vulnerability to surprises. Financial surprises especially happen more often than they should in the business industry. This is where having business insurance or emergency fund comes into play. That said, it’s important to note that these protections do more than just cover costs. They can also be as crucially important as preventing legal action being taken against your business.
#4: Business Competitors
Nothing helps improve your business like knowing what to measure up against. For businesses, this is in regards to knowing who your competitors are. Where this helps in framing a financial strategy is that it gives you an idea of how much you likely need to spend to stay competitive. By running a simple competitive analysis audit, your financial strategy can also benefit from knowing what not to spend on that your competition has wasted money on.
#5: Competitiveness Of Niche
The overall competitiveness of your business niche is another good indicator of how much your business will need to spend to stay competitive. Competition is mainly measured by what is known as the market value. The market value is essentially the price range that your business has to work with to make a profit. As we can imagine, the financial strategy of your business will be centred around how to profit the most given the current market value.
#6: Business Credit
A financial business strategy doesn’t only revolve around physical revenue. It can also be structured around business credit. In most cases, knowing the credit value of your business also allows it to allocate finances to other areas that otherwise would’ve been spent on building up a sound structure.
#7: Business Target Audience
One of the most overlooked points when it comes to framing a financial strategy is the target audience. As a rather simple point, knowing your target audience gives your business an idea of what financial range seems more enticing to potential clients.
#8: Value Of Unique Selling Proposition
Arguably the most important point to consider while framing a financial strategy is the value of your unique selling proposition. Also known as a USP, this factor is the main source of revenue for your business. This can include a specific product or general service that is most profitable for your business. That said, knowing the value of your USP within the range of the market value will allow your business to set competitive prices. Much like knowing the competitiveness of your niche, your financial strategy will also be centred around how to set the highest prices for your business.