Financial strategy: fact or fiction?
Is it necessary to develop a financial strategy to run a small business, or is it merely a fictional idea from some MBA who understands nothing about “real” business? It’s an interesting question and one that is often debated in the small-to-medium (“SMB”) size business world.
When talking with business owners about their financial strategy, I often get a myriad of different responses. Some believe that developing a financial strategy is only important for really big companies. Others believe that creating a budget for the upcoming year equates to having a financial strategy. Many still believe a financial strategy is something that is created at the beginning of the year but that day-to-day activities and rapid business changes often make it invalid over time and thus not useful. So, is developing a financial strategy really fact or fiction for SMB firms?
Before I answer, let me ask another question. Do you need $1 million this year to run your business or $100,000? The answer is, “It depends.” Are you ramping up your marketing? Are you going to need some equipment? Are your customers taking longer to pay you? How much cash do you need to survive if you lost your largest customer?
These are but a few questions business owners may need to consider. Although each business is different and thus the questions may be different, the fact remains that every key business decision has financial implications and these implications can be either positive or negative to the viability of
This leads to a another question: is the business generating sufficient cash flow to accomplish its strategic objectives or is additional funding going to be required? The answer is, once again, “It depends.” A number of different factors-the timing of existing cash flows, the financial strength of the business, the size of expenditures, etc.-need to be considered when developing a financial strategy. The fact is your financial resources can often
dictate what you can and cannot strategically accomplish and so it’s critical that your strategic plan aligns with your financial plan.
This is especially true for SMB organizations because they tend to have even more limited resources. So what’s the bottom line? Business owners must continually plan, monitor, and keep abreast of the financial implications of their business decisions as they navigate through fluctuating markets. Otherwise, they run a substantial risk of not having sufficient capital to sustain or grow their business. This makes developing a financial strategy a critical fact-not a fiction-of running a successful organization.
All businesses need to have a financial strategy, not only at the beginning of each year, but as a living document that gets updated as the business environment changes. Because, that old adage of “those who fail to plan; plan to fail” is as true today as it has always been.