The last thing a company’s leadership wants to confront is drawing up a sound strategic plan and finding out the business doesn’t have enough money to sustain the blueprint’s implementation. To prevent financial problems from throwing the firm’s commercial ambitions offtrack, senior executives may establish such procedures as accurate financial reporting and periodic debt-management reviews.
A strategic plan is a commercial outline a company relies on to gain success in a burgeoning sector or an industry that features many players. Top leadership draws up the blueprint to chart a sustainable path for future profitability, as well as to indicate to department heads where their priorities should lie. A strategic outline generally has a long-term focus, enabling companies to make the often painful short-term expense cuts that are necessary to reach financial stability down the road. To formulate a strategic plan, a business defines the problems personnel must cope with, pinpoints possible solutions and picks the best alternative, given external conditions, the state of the economy and the firm’s financial strength.
Companies sometimes must go deeper in operating budgets to find lingering inefficiencies and rein in waste. Failure to do so could create a situation in which business heads don’t have enough funds to implement top leadership’s strategic plans. A company must be solvent to conduct business, let alone to implement a strategic plan. Being solvent means having more assets than liabilities and being able to adequately marshal assets to repay debts and advance economically. Without sufficient resources, a company may be unable to find the cash necessary to execute its strategic blueprint.
Profitability management goes hand in hand with solvency administration. A company may find it harder to implement its commercial outline if it doesn’t generate enough revenues along the way. In an economy in which cash is king, the business must be able to spur sales and make enough money to sustain itself and pay for operating activities before even thinking about executing its strategic plan. Analyzing a corporate income statement helps top leadership pinpoint more precisely where a thorough profit strategy needs work, as well as tactics to use to woo customers more smartly.
A company experiencing liquidity constraints typically does not have cash inflows that match cash outflows. Corporate management must watch liquidity mismatches to make strategy implementation a success. A liquidity mismatch arises when money coming into the firm’s coffers and cash going out for expense payments do not happen at the same time. For example, most companies, even the profitable ones, do not receive customer remittances immediately after product deliveries. They must scramble for a while — from a few days to a few months, depending on credit and payment terms — before receiving funds.