Strategic financial management is about creating profits for your business. It’s about ensuring an acceptable return on investment. Business financial management is attained through financial plans coming up with financial controls and financial decision making.
Before a business can manage itself, you’ll need to define its objectives, identify, and qualify its available and potential resources. You’ll also have to come up with a plan on how to use your finances and other capital resources toward achieving the business goals.
Strategic financial management is applied across an organization’s departments and in all operations. This includes developing the elements necessary in helping your business take advantage of the available financial resources.
Financial Management Strategies in Business
Effective financial management is important for your short-term rental investment or the survival of any other business and its growth. It involves planning, organizing, controlling, and monitoring your financial resources.
Good financial management combined with effective short-term rental strategies will help you make better use of resources in your real estate business. It will help you in fulfilling business commitments and gaining a competitive advantage. It will also prepare you for long-term financial stability.
Financial management should be made part of the key processes within your business. Failure to include it in your ongoing planning will have you feeling that your finances are complicated and confusing. The following strategies should help you gain control of your finances.
- Evaluate Your Historical Spend and Historical Revenue
It’s said that if you fail to learn from history, then you’re doomed to repeat what caused your failure. This also applies to business financial management.
You must accurately track your businesses historical and current expenses. Remember that all your financial statements are historical. The numbers from previous balance sheets will tell you where you failed. They will also help you in identifying where you succeeded and the areas where you improved or need improvement.
The numbers on your previous balance sheets act as a barometer. A wetherwave that helps you know where the business was financially speaking in previous financial years.
This financial information gives you the context you need to evaluate the current situation. You’ll then be able to see the aspects where you’re doing well or falling-short on. This information can help you in judging your current performance against previous years and the current targets. You can then set new goals and benchmark toward boosting profitability.
- Building Your Profit and Loss
Profits and losses are the key components of your financial statements, otherwise known as the income statements. The statement combined the historical revenue and expense data, which acts as a financial summary of your business performance.
The statements act as a summary of your income and expenses. They let you know whether you were profitable or are operating at a loss. Your P & L statement basically covers:
- Expenses
- Net profit
- Gross profit
- The revenue
- The cost of goods sold
The numbers provided will help you see the costs of running the business. You’ll also get to know the steps required to push for continual success and improvements. During the process of tracking historical revenue and expenses to map to your profit and loss, you’ll understand every component of your business equation.
- Set a Budget and Stick to it
It’s not enough that you’re tracking the historical budget. That’s because proactive budgeting and forecasting is the biggest component of financial management.
Budgeting helps you to know where you have key financial dependencies. It enables you to predict what you’ll need to continue funding business operations. It also helps you in making wise financial decisions to meet your business goals, including staying on track to maximize your bottom line.
Your financial manager must know about your current gross profit and the operational expenses, including what they will become. This way, a responsible planner knows where to minimize the deductions.
A lot of the budgeting work happens before a new financial period. That’s said, budgeting must be an ongoing process. Whether monthly or quarterly, the finance department must conduct a budget to know the organization’s actual spend in the previous period. This should then be compared to the original projections, measured, and adjusted.
- Risk Management
Risk management involves the assessment, analysis, and finding ways of getting rid of potential hindrances to the success of a business.
Here is what risk management entails and how to help with strategic financial management:
- It helps with the evaluation of financial exposure.
- It helps to identify, analyze, and find ways of mitigating threats before they happen. This helps to minimize the chances of severe financial losses.
- It enables strategic financial managers to develop metrics that will help with the overall economic analysis of the business.
- Proactively Tracking Your Spend
In the current business environment, entrepreneurs must have visibility on every transaction. They must also have the power to reconcile their books in an instant.
It’s important that you have a corporate card and an automated spend-management platform. This will provide you with advanced controls for business, allowing you to set built-in budgets by department.
The advantage that comes with this includes:
- Real-time visibility over spend data, where you know who is spending what, where, and how much.
- Equip managers to oversee their team’s spend. Let them keep tabs on their team’s spending habits. The figures that are found can be compared against your profit and loss sheet to gauge your financial situation.
- Automatic sync with accounting platforms, which helps you to seamlessly reconcile with your spend. This is thanks to the built-in synergization with major accounting and financial management software.
- A customizable view of spend. Organizations shouldn’t wait for the end of the quarter to know how much has been spent. Take advantage of powerful tools to get a topline view of your organization’s spend.
Conclusion
Strategic financial management is crucial for the success of any organization. But before you implement any of the strategic practices, you must define the goals of your business and its objectives. Once you have them defined, the above strategies will help you steer the business to success.
