One of the most important elements of a successful business strategy is effective financial planning and management. Planning is essential to building your business, making smart decisions to grow, and potentially getting funding when needed.
To maximize your bottom line, it’s imperative to have a carefully crafted business plan that you not only execute well on but continually assess and adjust. You should also use all of the tools you can to maximize savings and minimize inefficiencies to secure your financial future.
In the sections that follow, we’ll walk you through the four types of financial management strategies:
Once we have that basic understanding, we’ll cover some of the biggest challenges of implementing financial management and how to overcome them as a business owner.
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It’s always best to consult a professional when making financial decisions about your business. This article is not intended to replace legal and financial advice.
Creating a financial management strategy
A solid financial plan is critical to succeeding in business. Understanding the fundamentals behind financial management is the key to nailing every stage of the planning process.
To help maximize control over your company’s finances and keep everything running efficiently, you need to make sure that your financial management is sound.
The three fundamental principles to keep in mind are:
- The purpose of your financial plan is to predict your company's future financial performance. And to be able to show proof of your business’s creditworthiness you need funding. Your plan can help you set a long-term road map to follow, including major milestones and goals.
- Your plan should prioritize long-term gains and how you plan to get there, so you can secure a sustainable financial future.
- A strong plan must be customized to your business. Consider the type of business you’re running, market conditions, your business organization, competitors, and use what you’ve learned from running your business already to help forecast budgets and expected spend.
These three principles are what make a successful financial management business strategy. No matter what strategy you pursue, what type of financial planning you’re engaged in, or what challenges you face, sticking to these fundamentals will see you through.
Key areas to consider when creating your financial management strategy
Your company will find success by tailoring these general principles to the company’s specific goals, needs, and means. Keep that in mind when reading about the four financial management strategies below.
1. Evaluate your historical spend and historical revenue
They say that those who fail to learn from history are doomed to repeat it. The same goes for financial management.
In order to learn from your past, be sure to track your historical and current expenses accurately.
Your past financial statements are considered historical revenue. The numbers from previous balance sheets can tell you a great deal—where you failed, where you succeeded, and areas you improved or still have room to improve. Your previous numbers act as a barometer, a weathervane that lets you see where your company was at financially in previous quarters or years.
This financial information gives you the context necessary to evaluate your current situation and see the areas where you’re succeeding or falling short. You can use that information to judge your current performance against previous years and current targets. From there, you can set new goals and benchmarks toward increasing profitability.
2. Build your profit and loss (P&L)
A key component of your financial statements is your P&L, also known as the profit and loss or income statement. These statements use that historical revenue and expense data and act as a financial summary of your business performance.
These statements act as a summary of your income and expenses, letting you know whether you were profitable or operating at a loss in that given month. Typically, your will cover:
- Revenue (sales)
- Cost of goods sold (COGS)
- Gross profit (revenue minus COGS)
- Expenses
- Net profit (gross profit minus expenses)
These numbers will help you clearly see the costs of doing business and how much money you’re actually bringing in. Which you can then use to determine the steps you need to take to push for continual success and improvement. By tracking historical revenue and expenses to map to your P&L, you'll force yourself to understand exactly where you’re spending money in the business and where you’re making money too. Check out our page on for more information.
3. Develop a budget and create cost systems
Tracking historical budgets and understanding where your money is going is only part of effective financial management. A critical component is proactive budgeting and forecasting, which ensures that financial resources are allocated optimally to meet business goals.
A well-structured budget helps you:
- Set clear guidelines to manage spending.
- Identify key financial dependencies and predict the resources needed to sustain operations.
- Make informed financial decisions that align with your business objectives.
- Stay on course to maximize your bottom line.
Understanding your current gross profits and operational expenses, as well as forecasting future figures, is essential for minimizing deductions from your top line and maximizing net profits. To create a clear and effective budget, consider these key questions:
- What are the projected sales for the period?
- What are the direct costs of sales, such as materials and implementations?
- What are the operating expenses, including overheads like payroll, marketing, travel, rent, and utilities?
Having previous year’s figures on hand can be valuable, serving as a benchmark for realistic budget projections. Additionally, implementing cost systems can help track and control expenditures, providing more detailed insights into where money is being spent and where efficiencies can be gained. Management reports, generated from these systems, offer crucial data that can guide decision-making and adjustments.
Budgeting should be an ongoing process. Regularly—such as monthly or quarterly—conducting a budget-to-actual analysis allows you to compare actual spending against projections, helping you identify areas for adjustment and keep financial management dynamic and responsive.
4. Manage working capital
Modern business technology makes it easier to have visibility on every transaction and the power to reconcile your books in an instant.
Having a corporate card and an automated spend management platform that provides advanced controls for business allows you to set built-in budgets by user or department. Benefits include:
- Real-time visibility over spend and financial data—Know who is spending what, where, and how much in a moment.
- The ability to empower managers to oversee their team’s spend—Managers can keep tabs on their team’s spending habits as they occur. These figures can be compared against your budget and P&L sheets to gauge your financial situation.
- Automatic sync with accounting platforms—Reconciling your spend is seamless, thanks to built-in synergy with major accounting and financial management software like QuickBooks and Xero.
- Customizable view of spend: Don’t wait for the end of the quarter to see how much you’ve already spent. Powerful tools allow you to take a topline view of your company’s spend or zoom into a single user or transaction.
Ramp’s platform is flexible and works with operations both large and small. Configurations are customizable, allowing you to tailor them according to your specific business needs.
Discover Ramp's corporate card for modern finance
Overcoming Financial Management Challenges
Financial management is a cornerstone of overall business success and health, reflecting the effectiveness of your company’s operations and financial planning. A well-crafted financial management strategy should not only maintain stability during routine operations but also withstand challenges and pressures that arise over time. With thorough preparation, flexibility, and efficiency in business practices, you can navigate these challenges effectively.
Challenges can be categorized into two main types: internal and external.
Internal Challenges As your company evolves, internal dynamics inevitably shift, creating challenges across various facets of the business, including financial management. These internal challenges often stem from growth, changes in your business model, or operational adjustments, and can include:
- Shifts in focus or business model: As your company grows, you might introduce new products, services, or even alter your existing offerings. These changes can significantly impact your financial management, as new processes often lead to new expenditures that must be balanced against potential new income streams. For example, expanding from a product-based model to include services might require new investments in personnel, training, and technology.
- Growing recurring expenses: Over time, your business may see an increase in recurring expenses such as payroll, subscriptions, and maintenance costs. These growing costs can strain your cash flow if not carefully managed, requiring adjustments in budgeting and forecasting to ensure sustainability.
- Periodic expenses: Certain expenses occur periodically, such as annual software licenses, tax payments, or large-scale maintenance projects. These costs can create financial strain if not anticipated and incorporated into your financial planning, potentially leading to cash flow disruptions.
- Expansion and diversification of client base: As your business expands its market reach, the client base becomes more diverse, leading to fluctuating income streams and the need for adaptable financial management. Managing larger, more varied markets can introduce complexities in cash flow, requiring more sophisticated financial tracking and forecasting tools.
- Personnel changes and workflow sdjustments: Growth often necessitates changes in personnel, whether through hiring, restructuring, or adapting to turnover. These changes can disrupt established workflows, leading to inefficiencies and unforeseen costs. For example, bringing on new team members might require additional training and onboarding resources, which can temporarily affect productivity and increase operational costs.
In addition to these growth-related challenges, internal financial management can also be affected by unforeseen issues such as technology failures, internal fraud, or shifts in company culture. Each of these challenges requires proactive planning, clear communication, and flexibility in financial strategy to mitigate their impact.
External changes
You offer goods and services that impact the world, and even if you currently occupy a niche, your own success is certain to create competition. To be successful you must keep an eye on your competitors to stay on par with them and to be a step ahead.
Here are some of the biggest environmental shifts that complicate financial management:
- Evolving competition: As your company grows, your competitors are always trying to do the same. New competitors, or shifts in existing competitors’ position relative to your own, will necessitate constant evaluation and correction of current budgets and risks.
- Shifts in the market: The companies in your industry aren’t the only ones changing over time. The consumers of your offerings are also evolving, and these changes translate into uncertainties for your ROI. Even macro-economic changes can impact the buying habits of your customers.
- Changing laws and regulations: Your business needs to comply with all relevant laws with respect to labor practices and controlled materials. Any changes to these, however slight, can mean major changes to both spending and expected income.
Between these and the internal challenges detailed above, financial management can be difficult to maintain. But luckily, there are fundamentals to guide you. Plus, any business can benefit from implementing flexibility into its financial management scheme.
How to overcome financial management challenges
It’s important to foresee the challenge as much as possible, prepare for every contingency, and have a detailed plan of action for all possible scenarios.But even the best plans can sometimes be disrupted.
We detailed strategic financial management above, primarily focused on long-term gains, prioritizing stability, and the holistic health of the company.
Tactical management on the other hand is more concerned with short-term gains for your business. This form of management concerns short-term gains and adjustments in day-to-day activities. Any successful financial management must strike a healthy balance between the short and long terms, so tactical management involves:
- Shifting current practices to adjust to rapid changes
- Introducing exceptions or special case solutions
Maintaining a balance between these two focuses is the best way to ensure success despite any and all challenges your financial management plan faces.
Whatever your strategy, execute it with Ramp
Identifying the right goals and strategic planning is crucial for any company, and once these are in place, finding the right business card becomes essential. Ramp offers more than just a corporate charge card; it provides an all-in-one financial management solution. With Ramp's Savings Insights program, you can track and optimize company expenditures, and unlike other cards, Ramp focuses on helping you save money with no interest or fees for cardholders.
