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Align Your Finances to Strategy
Align Your Finances to Strategy

It's no secret that many companies these days, indeed, struggle with finances. Financial difficulties are common in the business world and financial mistakes are the most dangerous ones you can make. But why do so many companies have problems with finances? 

One of the main reasons is the lack of alignment between finances and business goals or strategies. Setting a business goal and developing a strategy for it is vital for success. However, having the funds to reach those goals is equally important. 

A lot of companies withhold information in a silo these days. In other words, departments responsible for budgeting and departments responsible for creating business goals do not interact with each other. Instead, there's always a middleman, such as a manager or a CEO who decides how and which information is shared between the departments. 

In an effort to save money and cut costs on vital business operations, companies make the mistake of failing to align finances with strategies. If you really want to optimize performance within your company, both finances and business strategies need to be properly supporting each other and here's how to do that. 

 

Envision the success

Every company has a business plan. That plan indicates what success is for a company and what needs to be done in order to achieve it. The plan itself may not cover every detail but the company must know what its goals are and how every employee can contribute towards achieving those goals. The plan, however, does cover important business objectives. 

Therefore, those objectives should help envision the success you had in mind. Developing a budget for that success shouldn't just indicate the strategies that are required but also the costs that are involved with creating the strategies and putting them into action. 

As an example, your business objective is to increase conversion rates but your budget doesn't support the fact that you may need extra staff, better marketing efforts and personalized offers. One simply cannot work without the other, despite your best efforts to make it so.

 

 

Plan the budget and strategies at the same time

The main reason finances aren't aligned with business strategies in many companies is that the people who draft business strategies aren't the same people who draft the annual budget. If a budget were to be designed to include business strategies and both their development and execution, you must provide executive insight into those strategies to the people who will create the budget. 

In essence, it comes down to getting everyone on the same page so that proper alignment between finances and strategies can be achieved. You can create a cross-functional team that will consist of both executive-level members and financial experts. That way, you can clearly communicate the messages for business objectives and financial aspects. 

 

Long-term planning

Aligning finances to business strategy is not a one-time thing. Effective budgeting requires long-term planning if you want to have a clear vision ahead of you. The main reason is that budgets are created annually, whereas business strategies oftentimes take more than a year to deliver viable results. This is where finances and strategies tend to go their separate ways. Long-term planning will, therefore, help you create a budget that can be adjusted to any situation. 

This includes implementing other strategies that will enhance the entire process. As an example, you might consider implementing secure information sharing to ensure financial data security – an added expense to be accounted for but a beneficial one nonetheless. If a budget has a level of flexibility to it due to long-term planning, it becomes much easier to make the necessary adjustments when needed. 

 

Use viable metrics to drive results

It's no secret that aligning finances to strategy might not work out in the best way possible from the beginning. It's basically a trial and error phase until you get everything right. The main reason is that the market itself is a very volatile environment. 

Changes can happen fast and they will happen often, thus forcing you to adapt. That's where metrics come into play. Metrics and KPIs (Key Performance Indicators) can help you measure your efforts against market data. They will show errors and room for improvements. 

The real-time data acquired from metrics should be clearly communicated to employees so that they can use the information to make more informed and more strategic decisions. That way, you can use the data from viable metrics to drive the desired results by adjusting your strategies at the right moment. This is the key for not just aligning finances to strategy but also for remaining both relevant and competitive in the market.

 

 

Conduct regular forecasts

If you want to have an effective budget that will support your business strategies properly, you'll have to conduct regular financial forecasts. Forecasting, especially when it comes to finances, is something every company does but rarely with proper alignment in mind. 

Forecasting is basically predicting financial outcomes of various efforts, strategies and operations. Based on market data you gather, you can more or less accurately predict certain outcomes. The problem occurs when companies have unrealistic expectations that are founded on previous performance and outcomes. 

As mentioned before, the market is a volatile environment and the past cannot determine the future, especially since the market is constantly evolving. Therefore, financial forecasting should be in accordance with your budgeting. That way, you create a valuable tool that can assess whether or not your budget will make the cut of supporting your business strategies. 

 

Aligning finances to strategy isn't a difficult thing to achieve. However, the lack of proper communication within a company leaves this task neglected long enough for it to become a major issue. That's why budgeting and business strategizing shouldn't be separated, to begin with. Instead, if you put these two together from the start, you'll be able to ensure optimal performance for your company in the long run.

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