Constructing The Five Level Method Of Financial Strategy

Without considering the scale, enterprises must adopt a multi-level and multi angle approach to construct financial strategy carefully.

This method is easy to understand in a Pyramid chart.

The bottom is a basic matter related to corporate structure and business plan, and the more flexible it is, the more innovative it becomes.

This multilevel model serves two purposes: first, a blueprint for financial functions; and two as a reference for developing and maintaining the overall strategy of the company.

This model has five levels, each layer has different considerations: the first is about the life cycle; the second is about the financial data users; the third is the infrastructure; the fourth is the balance sheet; the fifth level is the profit and loss account.

Tier 1: cooperate with enterprise development cycle.

In the first tier, in order to understand the life cycle more intuitively, no matter what the future is,

How big the gap is, we can first imagine the withdrawal of enterprises and all the factors leading to this result (for example, equity investment, resale of enterprises, final liquidation, etc.).

Exit strategy is the end of enterprise life cycle.

A good financial strategy can link the current operation, the way out in the future and the turning point between the two.

Business leaders must also periodically reexamine the lifecycle by answering the following questions: are continuous plans in place? Are expansions planned? Are they carried out through internal growth or through external mergers and acquisitions? How much financial support do they need? Which financing channel is better? How heavy is the debt burden? Is it necessary for enterprises to relocate in other products and markets?

The fundamental purpose of this is to establish a strict timetable for these significant events.

The second level: timely pmission of financial information.

Enterprise leaders must be clear that the object of financial results is the data users, and the data users group will expand with the development of the company or the acceptance of the third party investment.

Whether we can provide the data needed by users in time to determine the success or failure of an enterprise.

The financial function must recognize this point and balance it all the time to deliver accurate and timely information to meet the needs of users.

The third level: defining the financial infrastructure.

The financial infrastructure must support decision making (for internal data users) and financial data survey (for external data users).

The basic structure of finance will also develop along with enterprises.

So enterprises

Three important areas must be addressed: financial organization, information system and data flow process.

Financial organizations refer to employees and their tools of employment.

This structure will develop along with the company.

Ensuring that this development is controlled and deliberate is a challenge for any business leader.

If a financial organization is not needed until a crisis occurs, management will lose the opportunity for development.

In order to minimize interference in collection and processing stages, maximization is achieved.

Enterprises need to get data quickly and accurately and classify records.

It will be more difficult for enterprises to carry out these tasks when they are mature.

After all, the best system and personnel mix must be based on reasonable budgetary control.

Capital expenditure or personnel input decisions can only be made after users understand the need for data.

The fourth level: optimization

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At the beginning of the life cycle, owners of small or new businesses should focus on survival and rapid growth.

Therefore, it is necessary to optimize the balance sheet.

After development, it needs to deal with capital management strategies, including assets and liabilities, and other projects that can show profitability.

Business owners must learn from the balance sheet operation to ensure that the company is competent for the challenges of major events in the future life cycle.