The Link Between Strategy, Finance and Financing

It probably won’t surprise you that we at Trek believe in thinking about strategy before money and finance. But, not to worry, there really is a good economic reason for this!

Strategic planning is the ultimate efficiency play. It helps you spend less and make more. Why is this? Three main reasons—focus, resources, and results. If you think and prepare strategically for the future of your business, you will know exactly where you want to go, what resources you will need to get there, as well as what results you can expect and how to measure them. Everything else falls into place after that. By thinking before taking action, you invest wisely in the future of your business—avoiding costly mistakes and yielding a better bottom line.

When you have a clear strategy, accounting and finance become tools that allow you to put dollar amounts to your operational plans. This approach will force you to evaluate your strategic action plans, making sure you can afford the resources you need and get the profits you expect. This is a great reality check on your vision. It also will help you understand whether you have sufficient internal cash to fund your plans. If not, you may have to seek outside financing of some kind.

If you are considering outside financing, there are several factors that you should weigh in your decision:

Speed – This is the ultimate advantage of outside financing: it enables you to make investments in your business that might otherwise take years to fund internally. Make sure you understand whether this speed will truly give you the advantage you want, because it comes at a cost.

Cost – Using outside financing will make your plans more costly. Make sure you have the margins to cover this cost.

Control – You give up a degree of flexibility when you bring in a financing partner. The money you receive puts you into a new “vendor” relationship. That is, the financing partner will have a direct or indirect control over a lot of what you do. Make sure you think through how this will affect your ability to manage your company and fulfill your plans.

Risk – The increased cost and the loss of some degree of control that comes with outside financing “ups the ante” of your strategy. This risk will force you to work faster and smarter. This pressure can be a good thing, but it also decreases your margin of error. Make sure you have the margin to spare.

If you weigh all these factors and decide to move forward with external financing, you want to be sure that you pursue the right type of lender or investor. A very clear explanation of the different alternatives available is in Where’s the Money? by Art Beroff and Dwayne Moyers. Their detailed table of contents will give you a feel for the nineteen major categories of equity and debt financing reviewed in this book.

-Mary Adams    2004