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Are you someone who runs a business or plans to own one in the future? Do you wonder how you can make that scenario a success? You’re not the only one trying to find the winning formula. There are over 33.2 million small business owners in the United States today. Many of these owners did so to become their bosses. A lot of pressure weighs on their shoulders as they work hard to make a profit and earn a decent living.
First of all, what exactly does strategic financial management mean? At first glance, you might assume that it’s about handling your company’s money and expenses. While that is true, it goes beyond numbers and data.
Strategic financial management is a plan that focuses on managing your company’s finances to achieve its long-term goals. In other words, it uses all financial decisions to try and help the business succeed. While this generally means getting more profits, it can also cover other areas of success. For example, you might be looking for ways to properly fund a merger or expansion that can grow your company’s reach.
Strategic financial management also covers more than the funds of your business. It looks at all your potential assets and plans to try and find an effective way to reach its long-term goals. Because of that, these plans are well-detailed and geared towards a specific purpose. It’s not just about being “successful”, since that can cover a wide area of possibilities. Instead, this method aims to help your company by evaluating, planning, adjusting, and compromising its finances to achieve milestones. These can range from earning high profits to expanding to new departments or fields of expertise.
As said before, strategic financial management uses finance to reach certain goals and ambitions that the company has. Because of that, the main factor in this approach is the goal-setting process. There are two types of goal-setting that it uses to make all approaches and answers meaningful. These are SMART goals and FAST goals.
SMART goals are one of the most well-known frameworks for goal-setting used by people around the world. In an article for HubSpot, Clifford Chi said he had surveyed 300 people to see if SMART goals helped; around 52% believed that having SMART goals helped them achieve their goals more often. So, how does it work?
The term itself is an acronym for Specific, Measurable, Attainable, Realistic, and Time-based goals. Each one indicates a characteristic that you should remember when setting your goals. This way, each one feels possible and practical in your life. Here’s what each characteristic means:
When a goal is specific, it means that you have a clear purpose and objective for yourself. Being clear on what you want to achieve and why can make it easier to plan your steps. For strategic financial management, this means that each plan should have a specific intention.
For example, as said before, many business owners want their companies to be successful. However, just saying that makes it vague and unclear. Without a certain direction, you won’t be able to clarify how you want your company to go.
On the other hand, companies during the pandemic had to find specific answers to maintaining business without face-to-face interaction. For instance, many restaurants shifted to delivering their products for takeout or shipping them to customers online. By having a specific dilemma or concern, these businesses could start brainstorming ways to solve it.
When you set a plan to lose weight, do you ever think of how much you want to lose? Surprisingly, this small detail can make a huge difference. By having a measurable goal, you can plan your approach to follow a certain standard or idea.
While this might sound obvious, it’s still important to remember that a goal should always be attainable. As a business owner, you should be ambitious and determined in achieving something in the future. It’s not enough to be content with a goal that you can easily reach. You should also set goals that make you want to improve over time.
For example, think of the restaurants that had to close or work at a limited capacity during the pandemic. The lockdown made it hard for them to handle business the proper way. Many decided to shut down for the short term, while others turned to deliveries or online shipping for continued business.
In the former situation, the owner would have to see if it was possible to keep the business afloat while shutting down. In the latter, they would have to consider if there were enough resources to make deliveries a sustainable answer. Either way, both answers gave an attainable and effective solution that helped these restaurants stay alive during the hardest times.
In the previous element, it said that goals should be attainable. In the same manner, goals should also be realistic. A goal that can be done practically is more appealing. In other words, when you set a goal, you should always try to do something feasible.
Now, I mentioned before that a business owner should have ambitious goals. While that is true, it doesn’t mean you should ignore the real-life challenges or possibilities. If you want to make a goal work, you have to find ways to make it happen without stretching your luck or resources.
For example, during the pandemic, many businesses had to operate either online or with a skeleton crew. While there wasn’t a clear timeline of when things would go back to normal, owners did have to consider that things would settle down. Realistically, that means switching from remote work to face-to-face work instantly would be tough. So, some businesses decided to continue remote work even after regulations changed. Others slowly shifted back to face-to-face work, such as adding crew members onsite or alternating weeks between online and offline work.
Lastly, SMART goals always emphasize a timeline. While you can have lifelong goals or long-term plans, you shouldn’t just wait and see when they can happen. A SMART goal should have some deadline attached to it. With it, you can streamline how long each goal and sub-goal takes to accomplish.
Strategic financial management means considering both short-term goals and long-term goals in your company’s growth. If you want to make your company a nationwide success in the next decade, you need to plan the steps to get there. What do you want to achieve by the first year? How about the second? How about five years from now?
To illustrate this point, consider how your potential company or shop would want to look in a year. Of course, you can’t expect it to be an overnight success. That’s why you need to see what your agenda is during the next twelve months. For example, you might focus on making profits on a limited budget. You could also look for ways to expand your resources, such as money and affiliations.
Another goal-setting strategy you can take is the FAST goal method. FAST goals are similar to SMART goals, as they both focus on how you can make your plans doable. However, whereas SMART goals rely on characteristics, FAST goals focus on a certain method or approach.
In other words, while SMART goals can be subjectively done, FAST goals are stricter in what you do and how you do it. Here’s how FAST goals operate and why they can help in strategic financial management.
To start, FAST goals stand for Frequent discussions, Ambitious scope, Specific milestones, and Transparency. By the meaning of each initial, you can already see how it hones on a certain method or plan. Let’s examine the first element.
Frequent discussions are mostly applicable to team-based plans or timelines. For business owners, this means you have to regularly talk and review how your objectives are being handled. With frequent discussions, you can consistently remind your team of the overall goal and the individual tasks that need to be covered.
For example, the staff of a coffee shop might meet up every morning to discuss the state of business and upcoming plans. The manager can use this time to relay key information, like events in the company or problems that need to be addressed. Workers can also use this time to speak about their concerns, such as payment issues or emergencies. Doing this every day builds rapport among the team and keeps them aware of what the vision is.
Whereas SMART goals focus on what is attainable, FAST goals care more about ambition. Ideally, goals should level up over time and become slightly more ambitious than the last. This way, the performance and the focus of a company can continue to build over time. However, it must still be practical and achievable by design.
For instance, a real estate agency that manages to get 10 active clients in a month may try to grow that number to 15 by the next month. It won’t be easy, depending on the season of the market or the trend of sales. However, it does give each member a goal to reach. Plus, while it can be a struggle, it’s still reasonable enough to make the effort worthwhile.
Similar to the characteristic of SMART goals, specific milestones are about being precise. As a business owner, you’d want to know how you’d want your investment to grow in the future. For example, you could focus your finances on expanding your reach to other areas of the city. You could also funnel them into better facilities or equipment. You can even use your funds to treat your workers better to gain their confidence and loyalty.
For the last element of FAST goals, you should always remember that you are part of a team. Even sole business owners work with other people, such as partners or associates, to make a profit. Because of that, you should always be clear about what you need to achieve and why.
In strategic financial management, you should always be transparent about how your finances will help your business. This means knowing what each fee or cost is for and if it’s worth using. It also means that you should be honest and ethical in how you do your business. For example, you should be clear on how you get your funds to start your business. Did you use your savings? Are you relying on certain loans or investments to make it happen?
Now that you understand these goal-setting strategies, it’s time to learn how you can start. Here are three useful ways to consider when you want to apply strategic financial management to your business!
At this point, you can see why specific goals and milestones matter in your long-term plans. However, you must always remember that all your goals should be clear from the start. When you have an idea or a direction you want to go, look at how that can come to fruition. By doing so, you’ll have an easier time setting the right path toward success.
For instance, a startup company needs to consider how it can make a profit during its first few years. Given that you are managing the finances, how will you use it to your advantage? Will you hire key personnel to make the quality of work better? Do you want to expand your reach and connect with other groups or companies? Is there some kind of marketing plan or branding strategy you need to get more eyes on the product? Consider all this when you set your business timeline.
As the pandemic has taught you and thousands of workers, nothing is for certain. Even the most tried-and-true methods need to change or improve as time goes on. Can you imagine if people stuck to typewriters, especially now that we have access to cloud storage and online data drives?
Beyond technology, you should always look at your financial plan and see if there are alternatives to your idea. While it might not be what you expected, it could make your work more successful overall. For instance, you might’ve thought about using your marketing funds to hire an advertising agency. However, you could save more money if you got one of your workers to take advertising courses. Not only do you enrich their skill set, but they can also contribute more to the company!
Success is never a smooth ride. Like any boat trip or car ride, there are always going to be hurdles and bumps that surprise you. In my case, one of the biggest surprises was the 2008 Stock Market Crash. As someone who works in real estate, I ended up selling some vital stocks because of how scary that seemed. In hindsight, I realized I should’ve saved those shares. However, while I couldn’t change my past decisions, I could always plan and map out my road to recovery.
The same goes for you and your business. Strategic financial management should always look toward the future. You have to consider what is happening now so that you can make tomorrow look brighter. So, always look at how you want to move forward. You might be planning to expand or add new departments to your team. You could use your resources to start a new project, like an e-book or a special event. Whatever path you choose, always remember that you should envision tomorrow and then work toward it.
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