Jorge de Lara
Vice President and General Manager for GCS
American Express Mexico and Latin America

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Financial Strategies to Drive Small- and Medium-Business Success

By Jorge de Lara | Tue, 05/24/2022 - 13:00

Economic reactivation is now well underway. Small and medium businesses have had to face important challenges and as this new economic reality begins to gather momentum, it’s vital for these businesses to work on building a robust financial foundation as their springboard to go beyond recovery and toward growth.

While we are still within a challenging context, and markets continue to adapt to a rapidly changing social environment, the juncture of economic reactivation provides a unique window of opportunity for growing businesses that have likely come out of the pandemic with newfound knowledge and tools surrounding how to do business in today’s world while ensuring resilience.

And when we speak of business resilience, we must address financial health. As market conditions shift, businesses that fail to grasp the critical importance of understanding their company’s finances have found themselves at a considerable competitive disadvantage, sometimes even going as far as having to question operational viability.

By identifying the key elements of a healthy financial situation, we can simplify the issue and focus on what needs to be addressed. Here are five financial recommendations I believe can guide any small business toward a better understanding on the matter:

  1. Periodic and structured financial analysis

One of the biggest pitfalls for a company’s finances is being efficient at operating inefficiently. Many processes might have worked in the past, adjusted to the needs and demands of a previous version of the market and the enterprise. In terms of accounting, this means not realizing that a company could be spending money on unnecessary resources. While companies tend to make a financial analysis when closing their fiscal year, there’s a great advantage to making monthly or quarterly revisions to address inefficiencies earlier. 

  1. Know your financing options

I’ve found that financing should be approached as a tool to be leveraged but it needs to be properly understood. For a growing business, options like corporate credit cards can provide financing periods and deferred payment plans without interest, providing a level of flexibility that can help with managing cash flow and expenses.

The important thing is to start by getting all the information needed to make a good decision. Financing choices should not only be in line with the company’s plans but should appropriately respond to its needs while enabling a healthy operation and thus unleashing growth. 

  1. Business asset management

While each business will have a specific set of challenges, there is always a level and kind of asset management to consider. This includes inventory, properties, furniture, equipment, and even intellectual property. Proper stock management, for instance, becomes much more critical within a shifting market, with businesses seeking to address demand while avoiding excess inventory, which can lead to degradation and eventual losses.

For any small company, good asset management will not only build resilience and company value, it should also be part of a growth strategy. From potentially generating savings through options like equipment leasing, to reducing risks and increasing the lifespan of machinery through maintenance, businessowners should always seek to optimize the way company assets are handled.

  1. Supporting the market ecosystem

Every company, regardless of size, is part of an ecosystem. From the very communities they operate in, to the individuals who make up their teams and the businesses that comprise their market, businesses should always fully understand the complexity and importance of such interactions at a financial level.

Proper payroll management ensures efficiency and compliance while building trust with collaborators, which in turn increases employee engagement. Good vendor relations supported by clear processes enable the growth of the market and improve reputation.

Each element plays a part, and when it comes to expenses, purchases, payments, and every other kind of financial interaction with this network, proper financial management will not only drive efficiency and provide transparency but it also builds upon the overall health of the environment each business needs to thrive.

  1. Digitally transforming finance strategies

There is no way to speak of good financial management in today’s world without doubling down on the importance of digital transformation. The increasingly vast array of accessible options has made it vital for SMBs to adopt new technological tools to remain competitive. In terms of finance, this means investing, both in terms of time and capital, to become more agile while remaining compliant.

By digitally streamlining internal processes like digital invoicing, vendor payment or business asset management, companies have the potential to save time, increase transparency and become more cost-efficient. On the other side, tapping into the global marketplace through e-commerce opens unprecedented growth potential.

All these changes also allow SMBs to better engage with the current consumer. For example, according to the Payment Methods Survey carried out by the Bank of Mexico, cash went from being the preferred method of payment 93 percent of the time to 86 percent of the time in 2020. Such trends mean that emerging businesses simply cannot afford to stay behind in terms of digital payment alternatives.

Perhaps the single biggest lesson I can take from seeing some small companies thrive and others disappear is that those that have continued to grow have made financial health part of their very culture.

This does not mean to think only of revenue; it means understanding that healthy finances are a core part of a company’s identity. Take for instance the choice of opting to work with a local vendor: this could reduce expenses while reflecting upon the commitment of a business to support its community; or leveraging an appropriate financing plan to invest on improving the quality of a product, responding to the vision of innovation that has driven consumer demand.

A good financial strategy permeates every aspect of an organization. It is the lifeblood of its viability and the enabler of its development and ultimate success. 

Photo by:   Jorge de Lara