Your business finances form an integral part of your business growth. Being strategic about your financial management could be what stands between your business and success.
Financial management refers to the general tracking of your expenses and earnings. Essentially, monitoring your money. Good financial management involves keeping an eye on what you’re spending and earning to prevent you from you from going broke.
Strategic financial management takes this a step further.
what is strategic financial management?
This is when you are a lot more deliberate in your approach to your finances. You carefully consider your revenue goals and plan on how you will meet them.
Strategically planning and managing your money also helps you identify how much money you need to grow your business. What you need today may be different from what you will need in another 6 or 12 months, and you therefore need to adjust accordingly.
how exactly do you do this?
A strategic financial plan requires careful consideration of how much money you actually need to run your business. Do you know this figure? If you don’t, calculate it by adding up all your business expenses, including how much you pay your team – yourself included.
With that figure in mind, you can then calculate how much you need to sell, and at what price, in order to make the amount of money needed to run the business. Do you need to revisit your pricing strategy, or the number of clients you have in order to earn the amount you need?
Below are the tips on how to strategically manage your finances.
1. start by having a goal
The main objective of strategic financial management is to help you achieve your goals.
In order to achieve these goals, you need to be clear about what they are. You also need to track a path towards achieving them.
Unlike ordinary financial management where you only track your earnings and expenses every month, here, you also track your progress towards a specific financial goal.
For example, your goal might be to have a six-figure US Dollar business. How much monthly revenue does this equate to? How are you going to achieve this revenue target? Is it achievable in your current circumstances?
Track your monthly figures with this goal in mind. Have you hit your revenue goals? Why not? What should you do differently? What steps do you need to take to make sure that next month goes better?
This figure should also grow every year.
At the beginning, you might just want to have the bare minimum. Your revenue target may not even cover 100% of your living expenses. But you need to work your way up from there.
You have to continue growing your revenue in order for your business to grow. As your business grows, so do your expenses. This could be due to additional staff, investments, marketing etc.
2. Understand your costs.
Service-based businesses often don’t have so many overheads, and you can therefore keep your expenses quite low. The highest expenditure in a service based business is usually staff salaries.
On the other hand, in a product based business, you need to have raw materials in order to create and distribute your product.
You can use these free templates as you get started thinking about your earnings, expenses, or your Profit and Loss. Understand what the difference is between what you’re earning and what your expenses are.
3. keep up with your money
Every Monday, for about 30 to 45 minutes, I have a date with my money. I look at my account and what’s come in. I check what invoices are outstanding and follow up with those clients.
I also have a look at what my pipeline looks like for the next couple of months in terms of revenue. Do I need to get out there and start selling? Do I need to go out and try to build up more connections and convert people into clients?
I do this every single week.
Even though it doesn’t change much week on week, it’s a constant reminder of what I need to do. If I really want to make that money, I have to go out and do stuff. Whether it’s selling, prospecting or following up with partners or chasing unpaid invoices.
many or us hide from our numbers
As a business owner, you need to know what’s happening in every aspect of your business.
Although I am a huge advocate of outsourcing the things you’re not good at, you still need to be aware of whatever is going on in those areas. This could be in finance, marketing, admin etc.
It’s particularly important to keep an eye on your money because, unfortunately, sometimes people steal. Without an idea of what’s going on with your books, you may have no idea what’s being taken out.
You, therefore, need to build up basic skills in understanding your money.
It doesn’t have to be complicated.
While you can outsource this service, don’t completely take your eye off your numbers. Make time, every month, to sit down with your accountant to go over your numbers for you to know where you stand.
If money isn’t something that you understand, find someone who’s good at explaining it in plain English. Oftentimes, accountants and bookkeepers use jargon, which makes it even worse.
You can also consider finding someone in your specific industry. For example, if you are in the creative industry, you could work with an accountant that specializes in the creative industry.
over to you
Do you have a revenue target? What ways do you track your progress towards this target?
If you need help figuring out how to calculate your revenue target, sign up for Simplicity – the business accelerator that will help you to figure out what exactly you need to be earning and how to sell enough to make that happen.