How to Set — and Achieve — Financial Management Goals

In July of 1999, Marvel Entertainment was emerging from bankruptcy, and its stock price stood at a paltry .94 cents per share. Sales were stagnating, and they were burdened with $250 million in high-yield debt. In this darkest hour, it was not a superhero that saved them; it was savvy financial management.

Corporate turnaround expert Peter Cuneo was brought on as Marvel’s new CEO in 1999. His first steps were to review the company’s finances, cut back on working capital, and conserve cash. In doing so, he gave the company breathing room, which they used to make strategic decisions. Analysis of their financial position led to the discovery that while licensing film rights was a decent short-term play, the highest-leverage move they could make was to produce their own films so they could keep more of the profits. This long-term strategy paid off, and Marvel now has produced several of the highest-grossing films of all time.

Not every company can soar to the heights of Marvel, but all businesses can learn from their strategic approach to financial management.

Why Does My Business Need Financial Management?

It’s no longer enough for finance teams to simply crunch numbers. They need to strategically plan for the success of the firm, whether that means turning around a sinking ship or helping to turbocharge the growth of an already-profitable company.

It’s no surprise that the vast majority of the over 1,400 CFOs who answered a recent survey said that they were expecting to sharply increase the time they spend on strategic planning.

In order to best allocate scarce resources, the finance department needs to be methodical about setting financial management goals. By establishing clear benchmarks around profit maximization, cash flow, and cost minimization, the finance team ensures that the company is always on sound financial footing and can make informed business decisions.

Financial Management in Action

Imagine your firm is considering multiple growth strategies. You might do a product redesign or a marketing revamp, or maybe you’ll hire for your financial team. How do you decide what to pursue?

You need to look at the numbers and think strategically.

What can you afford to do? What will maximize profits? How will new hires affect future cash flows in 5, 10, or 15 years? Financial management is the act of sorting through those questions and using the data to provide actionable insights. When the finance team acts as a partner to all growth-centric departments by providing a sanity check and mapping out a way forward, success will follow.

While it might be tempting to say that your financial-management goal is profit maximization, that’s a cop-out, because profit maximization is everyone’s goal. What matters are the steps you take to get there.

A Repeatable Process for Financial Management Success

The companies that exceed expectations are not the ones that stumble upon a one-of-a-kind opportunity. Rather, they are the ones that find a successful and repeatable financial formula.

Follow this process to stay on track with your financial management goals.

Create a Financial Plan

Define clear objectives, agree on deadlines, and understand what resources are available. You also need to do market research so you know what goals are realistic. Finally, you should assess your risk tolerance and understand the upside and downside of all potential decisions.

For Marvel, this meant being honest with themselves about the limitations they faced, given their cash-strapped position. This meant that they couldn’t start out making their own movies; instead, they decided to license their characters to several studios. This spread out their risk and gave their intellectual property the widest reach possible while keeping costs down.

Create a Business Budget

A budget allows you to figure out what resources are needed to complete a project. It provides insights into the resources you can use on hiring, development, and any other needs. It should also lay out your fixed, variable, and semi-variable costs; the sales and revenue needed to support different projects; and an estimate of expected profits.

A budget can help keep a complex mission on task by unifying and clarifying the goals of different departments.

Manage Your Cash Flow

A solid understanding of your cash flow is crucial for planning, forecasting, fundraising, and strategic decision making. Here are a few key ways to get better at managing your cash flow:

• Automate bank reconciliations. Bank reconciliation involves matching your transactions to your bank statement. Errors are more common when this is done manually, especially when you are dealing with a high volume of transactions. Automation allows you to quickly catch mistakes that could damage your cash flow. For instance, a supplier might have double charged you.
• Analyze your profit margins. Financial management, at its core, is about boosting efficiency. By analyzing your margins, you can find inefficiencies in your business and ruthlessly prune them. If you are burning cash on unnecessary expenses (think software subscriptions that you don’t use), or your cost of goods sold is higher than you thought it was, adjustments are in order.
• Manage solvency and liquidity. Analyze your ability to pay your long-term debts (solvency) and short-term debts (liquidity). You might find it necessary to increase sales, increase owner equity, or sell off some assets in order to stay solvent. If you are struggling to stay liquid, you can lease assets instead of buying them, analyze your accounts receivable to make sure you are getting paid fast enough, automate your invoicing, and wait longer before paying vendors.

Test and Iterate

There are a million and one things that can affect your financial plan: leadership can change, investors can have new ideas, and your customers can want something different from your product. Use the above steps as a framework, but always keep some slack in the system. Every plan faces challenges, so it’s how you react and adjust that counts.

Step Up Your Bookkeeping

Achieving your financial management goals is a lot easier with a good bookkeeping service. If your books are in disarray, your whole company will be disorganized, and progress on any project will slow to a crawl. Poor financial record-keeping, improper reconciliations, and a disorganized chart of accounts are especially problematic issues for many companies.

It’s important that the bookkeeping software you pick has the features you want and can scale with your company. Pilot fits the bill. Let us handle the details so you can focus on the higher-level goals of financial management.

Big Picture Financial Management

Financial management is so much more than entering numbers on a spreadsheet. It’s the process of taking all those numbers and translating them into actionable insights. Just as Peter Cuneo and Marvel used a clear and thorough analysis of their financial position to launch a stunning comeback, you too can pull out insights from your finances.

The discoveries won’t necessarily be earth-shattering. Maybe your version of creating a hit movie is discovering that your restaurant should be selling more vegetarian dishes. But if that moves the needle on your bottom line, you are well on your way to using financial management to unlock the full potential of your company.