One of the great challenges of small and medium-sized companies is to carry out financial management in an organized and correct manner. After all, not having a financial plan can slow down the growth of the business.
The basic “strategy” used for the management of many companies ends up being the resolution of day-to-day demands, without thinking about the paths that are being taken and without evaluating the position of the business, its potential and weaknesses. This behavior may even increase cash flow in the short term, however, it ends up impeding development over the years.
But the question is: what would be the first and main steps to put a plan into practice and, at the same time, improve the company’s results?
How to start financial planning
First, the company needs to define a strategic thought. In order to reach this point, it is necessary to prepare a strategic plan for the next five years.
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From these established goals, entrepreneurs will be able to make more effective decisions, both evaluating and defining paths. They will also be able to see if their choices are positively influencing the growth of the corporation – and improving profitability.
Tactical thinking
After a good strategy comes the tactic. In the business world, the best way to think tactically is with a well-prepared budget, which should be articulated in a monthly and annual view. This vision will allow to balance expenses and revenues, in addition to projecting the corporation’s balance sheet to increase working capital generation. Here, one must also take into account how to better position the company in the market – via marketing actions and sales strategies – as well as analyzing whether the company’s profitability is being well developed.
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One way to put all this into practice is to look for ways to compensate (above all, but not only financially) the employees, so that each one is committed to their area, achieving the programmed results. These financial variables must be included in the budget, in addition to the most common labor obligations.
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Periodic monitoring
Through different types of instruments, the monitoring must be monthly, analyzing if it has been possible to execute what was intended. If the results are unfavorable, it is recommended to think about effective corrections, to keep business growth continuous. For these and many other reasons, cash flow ends up being just one of many aspects to watch out for.
Profitability should be assessed on elements such as sales turnover, for example, so that it is clear which items are bringing positive conversion returns and which need to be repositioned or replaced.
The financial statements are another aspect of great importance. Through his study, the manager has a picture of the company’s situation in relation to debts and assets . You can see where the money was spent, what the main costs and expenses are. This periodic assessment can prevent crises and anticipate investment opportunities.
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Finally, knowing how your cash and loans are doing is essential. It is not recommended to commit more than ¼ of the operating profit to the payment of interest, as this will create a major obstacle to business growth. An interesting safety margin is to keep invested – in funds or applications that have immediate liquidity – at least 50% of a month’s sales volume. This will represent a way to avoid risks to the company’s equity, in case of any unforeseen market.
Finally, good financial planning is important for the development of the company, not an obligation.
