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How to build a financial strategy for small businesses?

financial strategy

A Guide to building financial strategy for small businesses

To our readers, we have put together a financial strategy for small businesses to improve the short-term and long-term financial management of cash flow, cost, budgetary control, and investment.

If you are a small business, irrespective of the business segment you are in, this is a guide to help you build a financial strategy. Our views are derived from research and analysis of the experience of a large number of small and medium businesses in building financial strategies for their businesses.

A business strategy helps a company achieve its goals of growth and competitive edge through planning and employing tactics in marketing, finance, operations, technology, and other areas. 

Most companies use one or a combination of strategies, depending on their goals, like for example, a company that has plans to expand may use a growth strategy, while a company that wants to improve its profitability adopts a cost-cutting or pricing strategy.

Financial strategy is one of the components of corporate strategy, arguably the most critical one, that impacts every aspect of your business. Not managing or having control over your finance is likely to be a factor between success and failure in navigating difficult times and growing profitably. 

An Introduction to financial strategies 

 A financial strategy is about making choices of what you will do, a financial plan guides how you will achieve the choice made in strategy. A financial plan that takes a larger portion of a business plan, evidencing its importance in business, typically comprises historical and projected financial statements – income statement, cash flow, and balance sheet – that show past performance, trends, and future projections. Businesses, small and large, must develop a financial strategy to manage the financial aspects of the business to help achieve the goals of the overall business strategy. The following elements must be considered while building the financial strategy for your business:

  • The current financial position
  • The major risks to the current financial situation
  • The fund requirement for an expansion or operations
  • Revenue outlook for the next three to five years
  • The sources and streams to increase revenue
  • The profitability of the revenue streams
  • The requirement of skills and talents

Managing finances along with sustaining and enhancing revenue are critical to the success of any business. A financial strategy that is the backbone of corporate strategy must address the following questions:

  • Business Model – What is the business model and how it will generate profit and cash for the company
  • Product Pricing – How your products must be priced to remain profitable and competitive 
  • Scaling – When and how you must scale your business and what all you need to do that
  • Cash Management – How will you manage your cash requirements for working capital and long-term investment plan
  • Investment strategy – What is the strategy for investments that can increase the business value
  • Compliance and Taxation – How do you plan your tax structure and other legal compliances including audits

What should comprise your Financial Strategy?

Financial strategy is a wide topic, and it differs based on the industry, size, structure, and even regions the business operates.  We will take a look the some of the most important and common elements that should be part of financial strategy to help businesses achieve their business goals. 

Business Model

The business model has to be tied to financial strategy for the business to succeed. The term business model refers to a company’s plan for making a profit by identifying the products or services the business should sell, the target market, pricing, and any anticipated expenses. A business model is developed by asking the following questions related to financial strategy. what is the unit economics of the products or services, what is the cost-benefit analysis of marketing strategies, How do you fund the growth stages, how can expenses be controlled?

Cash Flow Management

This is one of the most critical elements in business. It involves a review of the current cash position, the fund requirements for various short-term and long-term purposes in the forms of working capital, investments for capacity or market expansion, the sources of access to funds, and what should be its mix, among others. By laying out the cash flow strategy ahead of time, it will make financial decisions on when to write a check and when to access external finance during normal times and difficult times.

Sources of funds

Though part of cash flow, this has to be dealt with separately. There are multiple sources of funds and you must look at each option to evaluate which is the best option for each need. The need can differ in terms of the term – short or long -, the cost of funds, corporate policies like the timing and extent of equity dilution, and the profile of the lender or investor. Knowing when to access credit is an important aspect of managing cash flow. You cannot overlook the importance of capital mix as to what should be the ratio between equity and debt and the different forms of equity and debt within. 


A company without a budgeting process is like a boat floating around directionless. The budgeting process helps businesses to look at every aspect of the business by projecting the revenue, expenses, profits, cash flow, and financial position over a period of 1 year to 5 years. More importantly, budgets work as a control mechanism through the comparison of actuals with a budget on a periodical basis to discuss the reasons for deviations, if any, and devise mechanisms to address them. It also acts as proactive control by red flagging when the actual has exceeded the budget when planning to spend money under a particular expense head.

Financial Risk

This includes risks from CapEx investments, payment defaults by customers, supply chain disruption due to non-payment, difficulty in accessing funds when needed, and market risks like forex movements, and internal and global inflationary trends, among others. Not giving due importance to managing risks can lead your business even to bankruptcy and liquidation.

Credit Management

Management of credit terms with customers and vendors is crucial for better management of cash. Proper management for customer credit ensures that you will be able to collect payments on time and won’t lose money in the form of bad debts. The optimal credit terms with vendors help you manage your supply chain cash flow well.


Business growth needs investments. Businesses, small and big, must evaluate the feasibility of investment from different angles including financial feasibility. There are different investment evaluation methods in practice depending on the nature and size of the investment. An evaluation method typically tries to answer questions like when the investment will be paid back, and what amount of cash flow it would generate over the life-cycle of the project at the present value. 

Accounting and Compliance

You cannot implement a financial strategy without having a good accounting system that can produce financial statements in accordance with the relevant accounting standards for audits and compliance with various statutory mandates. Tax planning and management is another critical aspect that has an impact on the financials of a company. Proper management of accounting and compliance helps you avoid penalties and as well enhance the credibility of the organization for customers, vendors, lenders, and investors. They provide insights into what has happened in financial terms in the past year.

Why is financial strategy important for small businesses?

Good financial strategies and plans keep small businesses focused during their growth phases, challenging times, and when unexpected crisis situations emerge. It helps you understand the current condition of your business and predict the future outlook with a high level of accuracy.  Without a good financial strategy in place, you may spend your time in crisis management and day-to-day operations without being able to focus on strategic activities for you to grow rather than stagnate. A financial strategy must be developed factoring in the following 

  • Financial Plan – Plan for short-term and long-term through budgets and projections to manage day-to-day operations and long-term growth
  • Financial Control – Plans and budgets help businesses to review the reality against forecast, understand the deviation and take proactive actions
  • Review – You must review your financial results and position including profits, cash flow, and liquidity against your past performance and your plans. 
  • Action – Based on the reviews, you must make decisions to control the unfavorable trends and deviations, and make necessary steps to mitigate the risks now and in future

Let’s say you want to increase revenues by 25% in the next couple of years. You may need to add capacity, increase sales force or increase pricing. These all fall under your financial strategy. This will need you to plan CapEx investment in large sums that may not give you a return immediately. You will then have to figure out the feasibility of the investments, and how to source the funds at the best financial cost. 

How do small businesses adopt financial strategies?

Successful entrepreneurs see beyond the short-term to develop a business strategy that will take care of the long-term financial health of their companies. There are certain elements like cash flow, profitability, investment decisions, etc., that are common, but you cannot just copy and adopt a  financial strategy even from a similar segment and size. You must understand your company structure, corporate culture and governance, vision, and mission, before deciding on the combination of financial strategies for your business. 

You must know where finance fits into your overall business goals and objectives which can be different for VC-funded startups and well-established organizations and so are their need for funds. Your hiring and employment policies, credit policies, investments, and every aspect of business policy and decisions impact the company’s finances.

Also important is who will implement and manage the financial strategies for you. You may not have the required expertise or skills to do that and as well cannot afford to hire high-profile finance professionals. Outsourcing or getting a digital solution developed for you are not the best options. What could work for small businesses is financial management platforms that can act as a finance leader for you in building a financial strategy that fits your organization and using financial management and planning tools. 

How can financial management software solutions help in financial strategy?

A modern financial software solution that leverages multiple emerging technologies like AI, ML, RPA, and Blockchain, among others to automate financial processes and provide insights with minimal human intervention. It helps

  • Real-time Insights – Getting insights into various aspects of business that impacts the top line, bottom line, and cash flow
  • Data analytics  – enable businesses to make intelligent and informed decisions quickly

Big picture of financial strategies  

The financial strategy of a business plan is typically a general guide for financial operations to conduct finance functions effectively to help organizations meet their strategic goals. Whatever steps you take or strategies you devise for various aspects like increasing your revenue, enhancing your profitability, or improving your cash flow, finance is involved. Prudent financial management diligently looks at the objectives and analyzes their cost-effectiveness before allocating funds. Just spending money won’t benefit the businesses, it has to be ensured that the money spent returns in larger multiples. That will help your company determine if a decision is valuable in its journey toward the business goal.

Why is PACI’s financial platform a great choice for better financial planning for small businesses? 

Paci.ai, a unified finance management platform for SMBs, looks forward to tackling the backwards-looking nature of accounting with its real insights and better cash flow management,

The insights module works on the concept of proactive messaging on trends (Income, expenses, cash flow, customers, and key notifications providing a small business with actionable insights at the right time.

  • Paci platform collects transaction data from internal and external sources with minimal manual intervention to process, analyze and generate useful insights
  • Paci platform delivers all the financial management tools like income statements, cash flow, balance sheets, budgets and forecasts, and variance analyses, among others to help small businesses manage finance without knowing much about finance
  • Paci platform helps you control expenses through budgetary controls by alerting and red-flagging spending exceeding budgeted amounts
  • Paci’s cash flow simulator  ( Coming soon), leverages historical data to simulate key but the day – to day decision-making on hiring, buying capital equipment and planning promotions among others.

Paci financial management platform takes the role of a CFO or Controller by providing you with the following financial management services to help you achieve your financial strategies.

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