Strategic financial management involves managing a company’s finances with the intention to succeed. This essentially means that strategic financial planning is responsible for attaining a company’s long-term goals and objectives and maximizing shareholder value over time.
Below, we’ll explain what’s involved in strategic financial planning.
Understanding Strategic Financial Planning
The goal of strategic financial planning is to create profit for the business and ensure an acceptable return on investment (ROI). This is accomplished through business financial plans, setting up financial controls, and a financial decision-making process.
Before a company can undertake strategic financial planning, it needs to define its objective — including identifying and quantifying its available and potential resources — so a specific plan can be devised to use its finances and other capital resources.
In addition, strategic management also involves understanding and properly controlling and allocating a company’s assets and liabilities. These include monitoring operational financing like expenditures, revenues, accounts receivable and payable, profitability, and cash flow.
Furthermore, strategic financial management involves continuous planning, evaluating, and adjusting to keep the company or organization focused and on track toward long-term goals.
What Are the Elements of Strategic Financial Planning?
Strategic financial management is meant to be applied throughout all organizational operations. This involves designing elements that will maximize the firm’s financial resources and use them efficiently. Companies need to think outside the box because there is no one-size-fits-all approach to strategic management. Each company will need to devise elements that reflect its own needs and goals.
However, there are some common elements of strategic financial management that can be applied across companies. These include the following:
In the planning phase of strategic financial management, you will want to define your objectives precisely. Your company will also want to identify and quantify available and potential resources to create a specific financial business plan.
Some of the most common things involved with budgeting for strategic financial planning include:
- Helping the company function with economic efficiency and reduce waste
- Identify areas that incur the most operating costs or exceed the budgeted cost
- Uncover areas where a company may invest earnings to achieve goals more quickly and effectively
- Ensure sufficient liquidity to cover operating expenses without tapping external resources
Assessing and Managing Financial Risk
As you enter the third phase of strategic financial planning, you will want to identify, analyze, and mitigate uncertainty in any of your investment decisions. You will also want to work to evaluate the potential for financial exposure. This could include examining capital expenditures and workplace policies. You may also want to employ risk metrics such as degree of operating leverage calculations, standard deviation, and value-at-risk (VaR) strategies.
Establish Ongoing Procedures
The last step for strategic financial management is establishing ongoing procedures for your organization. These include:
- Collecting and analyzing data
- Identifying any problems and taking corrective approaches
- Making consistent financial decisions
- Track and analyze the differences between budgeted and actual results (variance)
Reach Out to Leonard Tam Professional Corporation
Whether you’re running a small or large business, there’s more to it than just bookkeeping and paying bills. The team at Leonard Tam Professional Corporation can help you build solid foundations for your business by providing a 360-degree view of how to make your business more profitable, keep most of your money by lowering taxes, and plan for your financial future.
Ready to get started? Book a meeting today with our team of experts.