Good Finance Strategy is about plans for the future. That means being prepared to adopt and adjust to any economic climate. A financial strategy is an overall plan for conducting business affairs that can be implemented today and through the years to come. A well-prepared enterprise is one that can weather stormy periods in both good times and bad.
For a company’s profitability and growth potential, a good finance strategy is necessary. The key to realizing one’s potential is taking advantage of every opportunity available in the market. The most basic element of this involves proper mirrors that allow the entrepreneur to see what others are doing to maximize their profits and minimize their losses.
Properly prepared capital structure is often referred to as an enterprise value or intrinsic value. The amount of cash that is necessary to run an enterprise is called the capital. Good finance strategy incorporates appropriate use of capital. This capital structure should ensure that the corporation can continue to operate smoothly for the years to come and meet its obligations in a timely manner.
Good finance plans rely on proper use of working capital. It is necessary to keep a sufficient balance between short-term assets and long-term liabilities. Proper management of working capital ensures that businesses can make required payments when they are due. A good finance strategy also considers the replacement cost of fixed assets in the case of liquidation.
A good finance plan must also provide an accurate forecast of cash flow. Cash flow describes the movement of funds within the enterprise. Proper cash flow forecasting is crucial for both the acquisition of new clients and for the maintenance of existing ones. Proper cash flow forecasting enables the management to adjust costs and promotions accordingly. For example, if the cost per unit is not predicted to increase in a particular area, the management can reduce promotion activities or stop advertising at a certain point. The management can also make decisions concerning investment strategies that yield the greatest ROI.
Proper financial planning helps improve the efficiency with which the enterprise manages its resources. The most important element of a good finance strategy is the ability to build an appropriate balance between short-term and long-term debt liabilities. The balance between short-term and long-term debt obligations determines the extent to which the enterprise can efficiently use its assets to meet its short-term cash needs and maintain a steady level of capital expenditure. A good finance plan enables the enterprise to achieve this desirable level of financing.