Businesses, large and small – must use adequate financial strategies to ensure that funds are utilised in the smartest way to fulfil business goals and enable business growth.
However, Mosaic Tech knows more than anyone that there is no ‘one size fits all’ financial strategy. Businesses need to consider a multitude of areas when it comes to financial planning, many of which overlap or vary in practice.
This short post will summarise the most common areas of financial strategy that all businesses need to consider and why they are important.
1. Cash Flow Planning
To create a cash flow plan, businesses must assess their assets, income and expenditure. Doing so allows companies to analyse how current expenditure fits projected cash flow.
Without cash flow planning, businesses cannot make informed decisions about expenditure, investment or future growth.
Businesses that fail to plan cash flow properly may spend too much money, become bankrupt or make poor financial decisions that do not fulfil their businesses potential for growth.
2. Investment Planning
Creating a smart investment plan is key to financial safety for businesses. Businesses often invest in securities such as shares or mortgages, which can provide good returns.
However, depending on the size and financial situation of the business, numerous investment strategies must be considered so that businesses can choose a strategy that fits with their overall goals.
Businesses willing to withstand the risk of variable prices may invest in shares or property as a ‘growth investment’ to create capital.
However, businesses looking for lower-risk investments may consider ‘defensive investments’ such as cash investments in bank accounts or fixed interest investments to create a stable income. These investments are less risky but generally provide a lower rate of return than growth investments.
As such, businesses must decide whether their overall investment strategy end goal is growth or creating a steady income and create their investment strategy accordingly.
3. Dividend Strategy
If your company has shareholders, a dividend strategy is necessary to decide the proportion of profits given to shareholders as dividends.
Companies must balance satisfying shareholders with retaining enough profits for future investment and growth.
By providing shareholders with satisfactory dividends, the value of investment in company shares is increased, which can attract more shareholders. This also reduces tax burdens for the company, which creates a cheaper capital structure.
4. Capital Structure Planning
Capital structure refers to how business funds are structured within a company, in particular how debt and equity are balanced (also called the debt-equity ratio).
Bonds and loans are the primary forms of debt, while different stocks or retained earnings are the primary forms of equity. By designing an informed capital structure, companies can increase their market value and benefit the interests of shareholders.
Creating a sound financial strategy for companies can be confusing and time-consuming. With the simple financial planning aggregation system offered by Mosaic Tech, companies can make informed business decisions with Mosaic Tech’s easy to use cross-functional platform.