Many business owners view their financial strategy as the foundation of a building. Once the foundation is poured and hardened, they expect it to hold up the building indefinitely without the need for further inspection. Unfortunately, this is not the case for financial strategies. A financial strategy should be viewed more along the lines of a map for navigation. If you do not update your map, you could be driving towards a destination that no longer exists or missing a shortcut altogether.

In the Australian business world, where interest rates are consistently rising and falling, and consumer demands are constantly shifting, having a “set and forget” approach to financial planning could be disastrous. A financial plan cannot keep up with the ever-changing demands placed upon Australian businesses. By the time you realise your financial plan is no longer adequate for your business needs, you could have already lost opportunities for growth or worse, placed your business in unnecessary financial danger.

Why Regular Financial Strategy Reviews Are Essential

The first and most important reason for reviewing your financial plan is to ensure your business is agile. Economic factors are constantly shifting and are not based on a linear timeline. This means if you created your financial plan six months ago, there is no guarantee the inflation rates you used back then are the same now.

With specialist accounting expertise with Findex, for example, you can identify problems before they become major issues. It will be far easier to make adjustments to the spending budget or refinance the loan than it will be to try to fix the problems that have arisen if you wait until the end of the fiscal year to review the numbers.

Critical Components of a Financial Review

It’s very easy to get bogged down in the numbers when you sit down to review the effectiveness of your strategy, but to make it an effective exercise, you should pay close attention to four critical areas.

Revenue and Profitability Analysis

The very first step in the review should involve analysing the performance of the company against the goals that you set for it in the past. It’s very possible to have high revenues but still lose money if the costs have escalated to the point where the profit margins have slipped by unnoticed. If you are selling a high volume of product but still losing money, then the strategy needs to be adjusted immediately.

Cash Flow Management

It’s possible to make money, but if the cash flow isn’t managed well, then the money will run out very quickly, and the engine will stall. A good financial review will include an assessment of the cash flow and whether it’s being managed well. It’s very important to make sure that the cash flow in equals the cash flow out, so if this isn’t the case, then it may be necessary to tighten up the terms with the customers and loosen up the terms with the suppliers.

Investment and Resource Allocation

Every dollar you are spending must be working for you. This part of the review will determine how effectively your investments are currently performing. Maybe you invested heavily in new technology, marketing, or staff, but it is important to determine whether it is giving you a good return on your investments. If it is not, it is perhaps time to redirect those resources into investments that are giving a better return.

Debt and Equity Structure

Finally, there is a need to consider your capital structure. With interest rates fluctuating, it is possible that a loan structure that was viable a couple of years ago is now reducing your bottom line due to interest expenses. Reviewing your debt and equity will help you consider alternative loan options or whether you need new capital to take your business forward.

Future-Proofing Your Enterprise

A financial strategy review is not just about looking back at what has occurred; it is about using that information to clear the way forward. By regularly reviewing your financial information, you are using it as a powerful tool to make decisions about your future.

Australian businesses that commit to a financial strategy review are better placed to navigate any financial storms that come our way, but we must not wait until we are forced to do so by a crisis. Schedule a financial strategy review today, and ensure your roadmap is taking you where you want to go!