Aspects of a company’s overall financial goal and strategy is called as strategic financial management. This includes several aspects of the company’s strategic plan, such as the marketing and sales strategy, the production plan, the personnel plan, the capital expenditure plan, and so forth. All of these things have financial ramifications for the financial management of a company.
Profit maximization is the important and primary objectives of strategic financial management. An organization’s long-term course of action is required in order to achieve this goal; and it is at this point that strategic financial management goals are introduced.
What is Strategic Financial Management?
Strategic financial management entails not only keeping track of a company’s funds, but also managing them in a way that allows the company to thrive. That is, achieving the goals and objectives of the company while increasing the value of the shareholder’s investment in the company over time.
However, before an organization can manage itself strategically, it must first clearly define its goals, identify and measure its current and prospective resources, and develop a clear plan for employing its money and other capital resources to achieve its objectives.
Strategic Financial Management Definition
Strategic financial management means process of managing the finances of an organization, corporation or a business. in order to achieve the organization’s long-term objectives. It is a management strategy that makes use of a variety of strategies and financial instruments in order to develop a long-term strategy. It ensures that the plan is implemented in order to achieve the targeted goal.
A Comprehensive Overview
Nature of financial management is carried out through the development of financial business strategies, the establishment of financial controls, and the application of financial decision-making techniques and methods.
It is necessary for effective financial management to be aware of and adequately manage the assets and liabilities of a company, as well as distribute and receive those assets and liabilities. Tracking operating finance items such as expenditure, sales, receivable and payable accounts, cash flow and profitability, among others, in order to maximize profits is part of this process.
To keep a company focused and moving in the direction of long-term objectives, strategic financial management incorporates all of the aforementioned activities as well as ongoing review, preparation, and improvement. Strategic management refers to the process by which a company deals with short-term difficulties on an as-needed basis in a way that does not compromise the company’s long-term strategy.
Elements of Strategic Financial Management
According to the dictionary, an element is a portion or aspect of something, especially one that is essential. In order to properly understand the scope of strategic financial management, we must understand the three important elements of strategic financial management as follows.
Budgeting and Financial Planning
Managing directors must ensure that sufficient financing is available at the appropriate time to meet the demands of the company in order for the company to avoid missing out on any potential opportunities. The need for money may be urgent in the short term in order to make capital investments in equipment and stocks, pay wages to employees, and cover sales made on the basis of credit card payments made by customers.
It may be necessary to invest in the medium and long term in order to significantly increase the production capacity of the company or to acquire additional businesses as a part of strategic financial management plan.
Maintaining Financial Control
In every organization, financial control is a critical function because it helps to ensure that the company is meeting its objectives and that funds are being spent effectively and efficiently. This procedure is carried out in order to ensure that there is no wastage of materials.
It is necessary to account for financial control in order to address concerns such as: Are assets being used efficiently? If so, are they pursuing their goals in the best interests of their shareholders and in accordance with established corporate practices and procedures? Are the assets of the company adequately safeguarded?
Financial decisions are those made by a corporate organization that have an impact on the financial situation of the organization in which they are made. In order to maximize shareholder value, the company must make a scope of financial management decisions, including decisions about the types of assets to be purchased and the pattern of capitalization, among other things. Capital allocation, finance, and dividends are the three elements that make up the most important components of financial decision making.
There will be a need for some form of funding for any investment, but there are a number of different options to consider when funding a particular investment. For example, it is possible to raise capital through the issuance of additional shares, the borrowing of funds from banks, or the granting of credit by manufacturers and suppliers.
Process of Strategic Financial Management
An organization outlines and defines its strategy and process of strategic financial management, as well as the direction in which it is heading. In the end, decisions were made and resources were allocated in accordance with the plan as a result of this process.
Strategic planning methods such as PEST, STEER and SWOT analyses, are all examples of what is known as strategic financial planning. It is common to have a plan for one year when looking at the big picture; however, it is more common to have a strategy for three to five years when taking a longer term perspective.
When putting together a financial plan, financial managers must take into consideration the following process of strategic financial management. It is possible that there may be different limitations of financial management depending on the size and industry of the project.
The Cost of Starting a New Business
Startup costs are one-time expenditures incurred during the process of establishing a new company and do not constitute ongoing expenses for the company. They have different expenses as a result of their differences in business practices. This category of expenditures under strategic financial management includes expenses such as start-up insurance fees, new fabrication equipment costs, legal fees, new packaging costs, registration fees, accounting fees, a marketing plan, and other expenses.
An Examination of the Competition
When it comes to marketing and strategic management, competitive analysis is the process of evaluating the strengths and weaknesses of current and potential competitors and making recommendations. An offensive and defensive perspective is provided in this study in order to identify opportunities and threats on both the offensive and defensive sides of the spectrum.
Analyzing Revenue Forecasts
It is possible to forecast your company’s revenue based on the current state of the company as well as your previous financial performance and trend lines. In order to be accurate, a revenue projection must take into account the entire business, rather than just the activities and targets completed by your sales staff.
Comparing revenue estimates to sales projections, it is clear that revenue estimates are more comprehensive. In order to determine how much money will be available to pay for ongoing expenses and whether or not the project will be profitable, it will be necessary to make periodic assessments throughout the project’s duration.
Ongoing Expected Costs
Regularly occurring costs (also known as operational costs) in the business world are expenses that are incurred in the day-to-day administration and maintenance of a company’s property and its property’s property. Labor, supplies, equipment upkeep, shipping, and facility use are all included in the total cost of the project. Costs must be divided into monthly amounts and subtracted from the income estimate in order to be calculated accurately (see below).
Characteristics of Strategic Financial Management
The following are some characteristics of strategic financial management that distinguish it from other types of financial management
As things change at breakneck speed in today’s financial world, regional finance management practices are evolving at a breakneck pace, driven by a variety of environmental factors such as: one, a rapidly increasing organization scale, geographic scope of operations and business diversity.
Two, the emergence of financial markets that provide opportunities to access a broader range of innovative financing options but necessitate the need for in-house financial management expertise; and three, the emergence of global financial markets that provide opportunities to access a broader range Some of the most important characteristics of Strategic Financial Management are as follows.
- It manages to be both organized and adaptable at the same time.
- It is concerned with the administration of the fund over the long term, taking a long-term perspective.
- When dealing with factual information, it employs analytical financial tools in conjunction with qualitative and quantitative judgement to arrive at a conclusion.
- As a result, it contributes to the long-term growth, profitability, and survival of the organization as well as the maximization of shareholder value.
- It aids in the formulation of appropriate strategies as well as the ongoing monitoring of action plans to ensure that they are in line with long-term objectives and objectives.
- It entails approaching problem solving with an inventive, creative, and multifaceted approach in order to identify solutions.
- While assessing the challenges in the context of the organization, strategic financial management can identify a number of potential solutions that can be implemented.
- This approach is distinguished by the use of result-oriented resource combination, particularly in the case of financial and economic resources.
- In order to achieve its strategic financial objectives, the business must adopt and update strategies on a regular basis, which is a developing and ongoing process.
- The primary goals of the organization are the maximization of profit and wealth for its shareholders.
In two major financial decisions that have effects for the entire organization. Understand the meaning of strategic financial management and characteristics of strategic financial management assists financial managers in making informed decisions. In the first instance, decisions are made about investments in the company’s assets, and in the second instance, decisions are made about how such investments should be funded. Hope you would now have gained enough knowledge on what is strategic financial management, elements of strategic financial management, and components.