Discipline with strategy, cash-flow management and financing growth can lead to financial health in your business.
Small business owners who want to have be financially successful must focus on those three steps.
While many businesses are aware of these primary priorities, it would be great to see a proper disciplined focus to go along with the end of the ongoing pandemic.
Many entrepreneurs are visionaries with no shortage of ideas. And it is their passion for new ideas that can result in financial volatility and a lack of predictable profit.
As businesses take the time to define their purpose, values, and ‘north star,’ they can outline the parameters they want to play and succeed.
The ‘north star’ for Amplify is Client Experience.
For others, it is quality, low-cost or other driving differentiates. Amazon’s north star is famously the Customer.
Once a decision-making strategy is set up at a big picture level, the executives can start to set their priorities and fine-tune (or develop) their operating models.
Ensuring that a financial strategy accompanies all strategies will lead to the economic success that leaders seek.
A financial strategy is a forecast that quantifies the plan.
It shows the various scenarios (for example, best case, probable and worst case) that the business will see itself in if it executes the strategy.
It is not uncommon for businesses to skip the crucial part of the financial strategy though as they will find it challenging to ‘guess’ or commit to expectations.
The important reminder is that all forecasts are wrong, but they raise questions, risks and opportunities that help you refine your plan.
They also let you define what it looks like to succeed.
A forecast gives rise to key performance indicators that can help you measure winning and progress.
Finally, forecasts set expectations that you can compare.
The best way to use a forecast is to revisit it as new information comes up, leverage it for go/no go milestones and measure.
Cash-flow challenges aren’t a sign of distress, necessarily. They come with growth.
As you add new products/services/regions/ideas, you’ll change the patterns and trends of your cash flow.
The volatility can be difficult, especially if you don’t have a strategy handle on cash-flow forecasting and an operating model with the processes, people and technology to manage cash flow.
The focus on cash flow starts with timely and accurate period-end (month-end) reporting with a reconciled cash balance.
Working capital management includes consistent and transparent processes for accounts payable, technology and people to ensure timely and accurate understanding of liabilities.
Further, it contains similar diligence on accounts receivable, collections and invoicing.
Getting access to cash already earned is an easy first step for cash-flow management!
And understanding what you owe is a crucial second step.
Depending on what stage a small business is in, it will be essential to finance growth.
Business owners need to decide a reasonable amount of their profit and working capital to reinvest new ideas into the organization.
They need to access the lending or equity required to deliver on their strategy before making commitments or setting expectations. (Having a financial plan is part of knowing what you need to access for financing.)
It is vital to limit the ‘bleeding’ of successful and profitable divisions and areas of the business for new opportunities and risks.
Further, a business needs to consistently reassess its successes to expand its market reach and brand and sales, stay relevant and find opportunities for scale.
Many businesses get excited and take preliminary steps to add sales or profit to their financial health without first setting the strategy, outlining the related financial plan, putting effort into cash-flow management and tackling financing early.
Slowing down allows you to speed up financial health and these three areas are significant fantastic first steps!