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Financial Strategy: The Top Reasons Why Businesses Sink Or Swim

If a business does not have the right financial strategy in place, its performance is seriously compromised. Financial strategy is the foundation on which a business is built; if this foundation has cracks, it can be the difference between a business thriving or failing.

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In a study by the US Small Business Administration, it was found that just 40% of new businesses survive six years or more. In this blog post, we’ll explore the top reasons for this.

1. Failing to understand customers and the marketplace

It’s vital that businesses do a competitive analysis to thoroughly understand their competition and the marketplace. If a business is not aware how it differentiates itself from its competitors, their customers won’t understand it either. Businesses need to define their value proposition in their financial strategy and then assess if they are communicating it correctly.

2. Inadequate financing

Having insufficient funds is a common problem for many failed businesses. Businesses need a solid cash flow to carry them through the sales cycle and the highs and lows of business. Borrowing from lenders can be difficult and expensive, so it’s important businesses can adequately fund themselves before they start generating their own steady revenue.

It’s imperative for a business’s financial strategy to ascertain how much money the business requires, and includes the costs of starting and running the business. Unfortunately, many a failed business’s financial strategy is based on unrealistic expectations of incoming revenue and the amount of money needed to stay afloat before they start generating revenue.

3. No customer strategy

Understanding their customers’ biggest needs and challenges – and how they can address them, is essential to any business’s success. If businesses don’t have an adequate customer strategy, they are as vulnerable as businesses that are heavily reliant on a single customer.

4. Poor management

Successful managers are good leaders who create a work climate that encourages productivity. One of the biggest flaws of management is inadequate planning. If management doesn’t have a strategic, comprehensible, and actionable strategy in place, they will be unable to create engagement, alignment, and ownership in a business.

5. Lack of planning

A successful financial strategy is based on careful, methodical, strategic planning. It should include business goals, workforce needs, an analysis of the competition, marketing, advertising, and promotional activities, as well as the company’s growth projections and the daily running costs.

6. Growing too quickly

Your financial strategy needs to address how fast your business can expand. A focus on slow and steady growth is optimum. If expansion is warranted after careful review and analysis, it’s important the financial strategy includes the right systems and people to drive the successful growth of the company.

7. Failure to embrace the latest digital technology

The latest digital technology, software, and accounting solutions can streamline processes and improve productivity. In an age where customers demand real-time data, communication, and analysis, businesses that have yet to move to the cloud or embrace mobile digital platforms are at a serious disadvantage.

Digital technology is relatively inexpensive and many platforms offer free or low-cost solutions to help businesses grow. The right integrated digital tools will help streamline the sales process, increase customer engagement, close more leads, and optimize spending to create sustainable growth.

Companies like Easier Accounting are already putting the very latest digital accounting solutions and technology into practice, offering flexible online accounting services that help businesses thrive by improving productivity and lowering costs.

For more information about the top trends affecting the business and finance world in 2017, download our guide:

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1 reply
  1. Sammy Blackmore
    Sammy Blackmore says:

    Most businesses I knew that fail have inadequate financing. They had enough funds to “start” the business, but not enough to support the business all throughout while it is still unable to stand on its feet.

    Reply

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