Your Financial Key to Success
Over 50% of businesses fail within their first year of operation. This fact is not a shock for most of us given all of the ever-changing variables, obstacles, and hardships that small business owners face. When we think about what makes a strong business or a project completion successful, sure – financial support comes to mind. However, most leaders I have encountered have very broad financial projections and no detailed strategic financial plan in place. Too many times, detailed financial planning gets very little attention or totally ignored all together. We all know we need money and cash flow to operate our business or project, we may even have a specific number in mind. We have also likely charted big projected spending such as real estate, salaries, heavy expenses, and the value and cost of our product or service. However, none of the above is strategical financial planning.
As a certified strategic planner, I know without question that your key to financial success is in strategic planning. A plan that fully details what you are trying to accomplish, how might you accomplish it, and how you will know when you have done it well. A strategic financial plan wisely invests company product and service earnings, has an extremely detailed budget, and plans for catastrophic events. The right strategic plan will assure that the company reaches its long-term goals and utilizes the maximum value of company resources wisely. Some things in the professional world require intuition or can be vague, but if you want to be a proven leader and thrive not just survive, having a strategic financial plan is absolutely mandatory.
How will you use and allocate the profit that your company gains? Misuse of company revenue is one of the biggest mistakes that will cause an organization to fail. Do you advocate for a large new office building, restock on inventory, or pay off debts? Financial responsibilities will differ, but if you want to do more than just stay afloat, I firmly suggest:
· Invest in your people
Nearly 80% of any organization’s budget will be salaries and benefits: It’s Talent! People are your biggest and most precious investment. The goal of recruiting, selecting, developing, and retaining talent is intense. Large sums of resources go into new hires; thus, retention is key and occurs when employees are provided job-embedded professional development and opportunities to grow. As a leader, our goal is to make sure we hire the best team, empower them through capacity building opportunities, and let them thrive. A highly competent and fully capable team is your best resource. Invest in the right people, at the right time, and with the right compensation.
· Invest in your product or service
Most leaders will use earnings to stock up on more product inventory or service status quo, which could lead us to remain stagnant. But, I want to encourage you to take it a step further and invest your earnings on product and/or service research and improvement. Very few organizations and businesses spend adequate time or resources on R&D: Research and Development. However, if you want to stay ahead of your competition and engage with your audience long-term, you must see past simple inventory management. Invest in ways to make your product or service innovative and make improvements that allow you to continually impress and provide value to those you serve. Your product and/or service must evolve to stay competitive.
· Invest in your marketing
The most amazing product or service still falls flat without properly allocated marketing dollars. I am the biggest fan of word of mouth and organic grass roots marketing; my brand is built on it and is growing due to it. However, in order for word of mouth and referrals to work you have to first introduce yourself to your target market and earn their business and trust. There are many marketing avenues available, and with various marketing strategies evolving daily, especially digital marketing, we must ensure we are investing in growing our business. However, while times may have changed, planning has not so make sure you plan on spending money on efficient, research-based, and proven marketing strategies.
Investing earnings outside of your organization is not usually our first thought. Listen, it is business common sense to put our money to work for us. Putting extra funds in places where it will grow even in your sleep is the ultimate goal and safety net for your organization. It can be a large amount or a small amount, a savings account or a brokerage account, however it fits in your vision, just do it! Seek the advice of a professional accountant to determine the best approach based on the organization’s financial goals.
Budgeting can be a scary word for some of us. But successful leaders fully understand that budgeting is how we ensure our resources are fully aligned to our goals and objectives. As the former leader of an organization with a budget of nearly $2 billion dollars, I made it a priority to fully understand the full budget and the resource allocation. Today, as I manage a budget of over $5 million, nothing has changed. Budgeting forces accountability and requires us to make decisions based on projections and our usual trends. Planning the details of our organization when sales, growth, and extra expenses are uncertain and not set in stone is intimidating. But fear not, a solid budget is your ally. You will have to budget according to your specific needs, but in general your budget should include:
List of all income sources and streams of money
List of all fixed costs
List of all expenses
A comparison of the previous two years of business
A projection of new business profits and changes
Use the above to come up with a quota of what must be earned every week to cover base expenses and to reach desired profit
A detailed plan of how profits will be spent outside of expenses
Every project, company, organization, charity, and group big or small must financially plan for catastrophic events because they will happen. If you wait until disaster strikes to think this through, you have already lost, and potentially may not survive it. To protect the integrity of your organization, the viability of its future, and the interests of your team and the customers/community you serve, be financially prepared for the worst. Start by asking the following questions and using your answers to prepare and adjust accordingly.
Can we afford to hire someone to act as an interim CEO or executive member should they become unavailable to work?
Do we have a budget set aside for a legal team?
Does it make sense to keep a team of lawyers on retainer? Or hire in-house counsel?
Do we have access to crisis management resources?
How many months of payroll/monthly expenses is necessary to save in advance?
What is our plan of action should sales plummet substantially?
Thinking ahead and preparing for all aspects of our finances will ensure that we keep winning at what we do best, and when things do arise – again, as they will – you will be better equipped to handle any trying time. A financial setback can unravel the best of plans. But, with a strategic financial plan, you are in a better place to continue winning and seeing your vision come to fruition thus reaching your long-term goals.
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