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Implementing financial strategy

by echo flam

Implementing strategy based on financial factors is usually the first thing that most small businesses do. As discussed in a previous article (see link below ), it is an important factor but still just a part of the overall strategy.

A list of strategic financial success factors and the measurements that accompany them should be written down and reviewed on a regular basis. As mentioned previously, these are taken from a Balanced Scorecard approach developed by Kaplan and Norton.

Critical Factor in Financial Strategy                                        Measurements

Sales                                                                                         Trend of sales, How much are sales returns?
                                                                                                   Tracking the accuracy of the sales forecast-are
                                                                                                   sales ahead or behind budget? Why? What are
                                                                                                   the selling prices compared to budget? Is there
                                                                                                   price pressure? Can prices be raised?

Profitablity                                                                                 There are numerous ways to measure. Return
                                                                                                    on investment. Return on sales. Residual
                                                                                                    income. Economic value added.

Liquidity                                                                                     Asset turnover, inventory turnover, receivable
                                                                                                    turnover, payable turnover, current ratio,
                                                                                                   quick ratio, cash flow. These measurements
                                                                                                   tell why there is too little or too much cash,
                                                                                                   if customers are paying according to terms,
                                                                                                   if there is too much dead stock in inventory.

Some small businesses keep track of sales and the amount of money in the checkbook. If both are OK, they feel like business is good. But the factors and measurements above track trends and enable the business owner to gain a deeper understanding of the dynamics of the business.
A successful business takes the time to develop these numbers and track the measurements consistently. Your business will be better off because of it.

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