Monitoring and reviewing of your financial performance help to improve your financial strategies and to ensure that they are effective as well as current. A review is a periodic assessment of your financial strategies, financial performance, and the environment, whereas monitoring is a continual assessment of what you have implemented. In this topic, you will understand how to assess your financial performance. This will help you decide whether you require any variations in the plans or alternative financial plans on your review. You will also understand how to make those changes. You need to follow workplace procedures while reviewing your plans and making changes to them.
To remain competitive in this age of digital technology, you must look at adopting new and emerging technology to boost your business’s profitability. This topic will also cover what these technologies are and how to research and implement them with relevant personnel.
Review of financial strategies is the periodic assessment of:
- Effectiveness of the strategy and the plan to achieve the strategy
- Financial performance based on the plan
- Internal and external environment of the business.
You need to review your financial strategies periodically as they may become outdated due to changes in the economic environment or regulations applicable to your venture. The competitive environment may change, or the business’s own circumstances may change. These reviews will assist you in keeping your business on track, help identify areas of growth or areas where you may require corrective action. Financial Plans are based on your financial strategies, so depending on the assessment of your strategies, you may need to either make variations to your strategies or develop alternate plans. You should do these changes according to your workplace procedures.
Assessing Financial Strategy
Assessing your financial strategy allows you to check if there are any changes to the economic, regulatory, or competitive environment. It also helps you take stock of the business’s internal environment and circumstances. This presents you with an opportunity to re-evaluate your priorities and goals. It will help you determine the progress you have made towards achieving your business objectives. It will help you decide if the KPIs you had selected or the benchmarks/targets you had set are still relevant or need modifications. Based on your review you will be able to course-correct in a timely manner.
To ensure that your review of your financial strategy is effective, you may follow the guidelines given below to assess your strategies:
- Set timelines for the review
- Have a well-documented review process
- Specify measures of success or performance standards
- Maintain appropriate records of each review
- Communicate outcomes of review to relevant stakeholders
- Undertake corrective or improvement action, if required
The outcome of the review of financial strategies and their plans helps:
- Discard existing strategies that are found to be ineffective
- Modify existing strategies or the plans to achieve them to make them more relevant in light of changing assumptions and trends as well as
- Develop new strategies or alternate plans.
You can do this review by different methods depending on the size and the degree of maturity of your area of operation and your business. Some businesses may formally review strategies, others may do it informally. The degree of maturity of the review process varies across businesses and depends upon the overall maturity of the business itself. An attempt to design and implement a sophisticated review mechanism into an unsophisticated business, or the other way around, will undoubtedly prove to be a disaster.
You should review your financial strategies at least once in six or twelve months. This way you are more likely to achieve your financial goals as you will be able to adjust your strategies for any changes in the internal or external environment of your business.
Determining Whether Variations or Alternative Plans Are Needed
Reviews are a waste of management time and resources if not followed by an action plan based on the outcomes of the review. You must act on the findings of reviews.
- You should take note of the variances of actuals from expectations or desired outcomes as detailed in the pre-defined measures of success.
- You should attempt to determine the causes of these variances. They may be due to several factors, such as poor staff training, change in the competitive environment, change in the cost of supplies, changes in regulations to name a few. You need to ensure that you have documented the reason for the variance. This will allow you to track the efficacy of the strategic plan and take corrective action, if required, in a timely manner.
- After determining the cause of variances, you should attempt to find solutions for the problem. This may result in further refining the strategic financial plan.
Based on your review, there may be the following scenarios:
- You have achieved your goals as per the key focus areas. In this case, define new goals in the spirit of continuous improvement. Basis the new goals, you need to formulate new financial plans to achieve the new goals.
- You failed to achieve some of your goals or are not on track to achieve them. As discussed above, find the cause, and modify your financial plans to address the same.
A growing business faces a lot of challenges. As it grows, different problems require different solutions. What worked for you a year ago might not be the solution now. Avoidable mistakes have turned what could have been highly successful businesses into poorly performing ones. It is vital to recognise and overcomes common pitfalls. Furthermore, you must be sure that the steps you take to rectify a problem today do not create additional problems in the future.
Workplace Procedures
When you conduct the review of your business’s financial strategies and related financial plans, you need to ensure that you follow your business’s workplace procedures. You should make changes to your financial strategy also in line with the procedures that your workplace may have.
Procedures that relate to the assessment of financial plans may include those relating to:
- Procedures within your workplace that outline the different things you must do to prepare for your review.
- Meeting protocols and procedures that you must follow while conducting the review.
- Procedures that provide you with the formulas you must use to make the calculations required.
- Procedures for documenting results of your review.
- Procedures for making changes to the strategies and plans.
- Procedures for documenting these changes.
- Procedures for communicating the changes to internal and external stakeholders.
Changes to Financial Strategy
Following are some key points to remember when you make changes to your financial strategy:
- Document
- Ensure that you have followed workplace procedures and documented the changes
- Obtain approvals
- Ensure the changes in strategy has been approved by all relevant stakeholder including the Board
- Communicate
- Ensure you have communicated the changes to all internal and external stakeholders as well as updated your plans
- Review
- Strategies are lving documents. Ensure you have defined the next review date or review it if there are any significant events.
Businesses can look at implementing new and emerging technologies to boost their business profitability according to their business plan. New technology can be technology that the company has never used before, while emerging technology can be new or developing technology. Emerging technology can also include the ongoing development of existing technology. These can alter the way you produce something or perform an activity.
New and Emerging Digital Technologies to Boost Business Profitability
These new and emerging technologies include:
It is the use of machine learning to simulate human intelligence. It combines large volumes of data with algorithms and iterative processing, which allows the software to learn from patterns, trends or features in the data. This technology builds smart machines capable of doing processes that used to need human intelligence.
Some technologies are housed on the cloud and enable real-time collaboration. This improves productivity and reduces the costs of data storage servers, thus reducing capital expenditure. Many vendors offer pay as you go services that significantly reduce your costs. Some cloud-based platforms enable colleagues and team members to work together on documents. On these platforms, everyone has access to the same files and can edit them simultaneously or at their own time. The changes are reflected on a real-time basis. This also has applications in customer relationship management and project management.
This is a technological solution where human input is minimised and replaced by system processing. It can include content, process, documentation, decision management automation, etc. It reduces the need for human intervention in repetitive tasks.
These are technologies used to store large amounts of data like traditional data warehouses. But unlike data warehouses that store processed data, these allow storage of raw data. These are more versatile than data warehouses as you can run any type of query on different types of data. These are useful in advanced analytics with real-time results.
Traditionally each IT system worked in isolation. With integrated systems and networks, businesses can integrate various sub-systems that they use for different functions. Examples of these functions include application processing and account opening, credit management systems, payment processing systems etc. This helps speed up processes, reduces duplication of data entry into different systems, improves staff productivity, and ensures efficient information sharing.
This is a technology that allows sharing of ideas and information through virtual networks and communities. These include social networks, media sharing networks, discussion forums, consumer review networks, blogging networks, social shopping networks, common interest networks, etc.
In today's business realm, mobile access software and hardware are a ‘must-have.’ When they are on the road, your sales team needs mobile access. At the time of delivery of services, your technicians need mobile access to capture payment, improving cash flow and cutting collection to almost nothing. Mobile access facilitates conferences, sales and promotions online and provides proactive push incentives that your company sends to existing customers.
Some examples of how new and emerging technologies help boost your business profitability include:
- New Sales and Promotion Channels
Using social media and having a presence for your business on Facebook, Instagram, LinkedIn and Twitter can assist you in promoting your products and services virtually and at a low cost. You can expand your sales coverage to wider geography at a margin of the cost of traditional channels. The increasing popularity of e-commerce provides an opportunity for your business to gain access to global marketplaces and sell your products on the internet. These can significantly improve your revenues and have the added benefit of reducing costs of sales, both of which lead to a jump in profitability. - Productivity Improvements
By automating different aspects of your business operations, you can avail of economies of scale and reduction in labour costs leading to lowered operating costs. Using technologies like chatbots, IVR, you can automate your customer service, thereby allowing your staff to focus on more complex transactions and queries. Automation of many processes leads to lower error rates and reduced related expenses. - Reduction in premises costs
With integrated systems and network solutions, you can get connectivity anywhere, allowing you to reduce your location costs. Solutions like Zoom, MS Teams, Google Meet allow your team to work from home. As the pandemic has taught businesses worldwide, work from home is feasible. This results in lower rent, electricity, water and other related premises costs. - Reduction in IT costs
Technologies like Cloud Computing and software as a service (SaaS) enable you to use ERP and CRM without needing to incur capital expenditure and associated maintenance expenses that an on-premises system would have entailed. Your labour and IT-related costs also reduce as vendors can directly provide cloud-based solutions via the internet, removing the need to always have available IT support.
Bernard Marr is a successful social media influencer at the intersection of business and technology. In his YouTube channel, he provides insights into trends in technology in business. Watch the video below to know some of the new and emerging technologies that businesses can use to boost their profitability.
Research and Implement Digital Technologies
As discussed in the previous section, new and emerging technologies can help boost your business profitability. You must research these and identify opportunities to implement them to support the financial management of your business. Some guidelines that may help you are given below:
- You may appoint a project team or give the accountability to a specific team member to coordinate the research. You may also engage with the research team if your business has one.
- Technology consultants can help review your business processes and provide a blueprint for technology adoption that will help boost your profitability.
- Competitive benchmarking also assists in identifying opportunities for technology adoption.
- Attending industry events is a great source for learning from peers in your industry.
- One of the oft-overlooked areas of great ideas on where to introduce technology and what to adopt is discussions with investors, co-workers, partners, customers, and suppliers.
- You also need to ensure that you have done a proper cost-benefit analysis of the different options available to you. Detailed meetings with different providers will help you in your evaluation.
After you have researched and evaluated the suitability of the technology to your business needs, you must implement it properly. Else you will be in a situation where you have spent precious dollars without getting the full benefit of the technology, giving you a low ROI on your investment. You can have a project team that will implement the same, or you may have your software provider implement it supported by a designated employee(s). Given below are some guidelines for successful implementation:
- You need to have studied all functionalities, done the mapping of your existing processes to see whether you need to modify or discard these processes and even introduce new ones.
- Testing is a critical part of your implementation plan. You may do this in-house or by hiring specialists. Your system implementation partner can take on this activity as well.
- You need to see what the communication impact is of implementing these technologies. This could be internal or external communication.
- Staff and customer training as applicable is of paramount importance when adopting new technologies.
Activity 5 - True or False
- Review is a periodic assessment of your financial strategies, financial performance, and the environment, whereas monitoring is a continual assessment of what you have implemented.
- Financial Plans are based on your financial strategies, so depending on the assessment of your strategies you may need to either make variations to your strategies or develop alternate plans.
- When you conduct the review of your business’s financial strategies, and related financial plans, you need to ensure that you follow your business’s workplace procedures.
- You should make changes to your financial strategy also in line with the procedures that your workplace may have.
- Businesses can look at implementing new and emerging technologies to boost their business profitability according to their business plan.
- These must be researched, and opportunities to implement them need to be identified.
- After you have researched and evaluated the suitability of the technology to your business needs, you must implement it properly.
Summary
Financial strategies aim at maximising the value of any venture. They look at the financial implications of the business strategy of the venture and help find the best financial course of action to achieve the business goals. To implement these strategies, you first need to identify your financial information requirements and prepare financial projections. Some key strategies that you need to develop and maintain relate to negotiating and managing business capital, maintaining adequate tax provisioning and establishing credit policies to maximise cash flow. You need to have determined the key indicators against which you will evaluate your business’s financial performance. You must record and communicate financial procedures based on your financial strategies to the required personnel.
Once you have implemented these financial strategies, you need to monitor them. You should use systems to monitor and report achievements against your targets and analyse data to determine the extent to which you have met your financial goals. Marketing and operational strategies should also be monitored to evaluate their effect on your financial goals. You can use financial ratios and benchmarks to evaluate your financial performance.
Lastly, you must assess your financial strategy and determine if any changes are required. You should research and implement technologies to boost your business profitability.
