The process of managing a company’s finances to achieve its strategic goals is what the Strategic financial management strive to do. It is a management approach that uses different financial techniques and tools to devise a strategic plan. Strategic financial management ensures that the chosen strategy is implemented to achieve the desired goals.
Features of Strategic Financial Management
- It focuses on long-term fund management, with a strategic perspective in mind.
- It promotes profitability, growth and long-term presence of the company and seeks to maximize shareholder wealth.
- It can also be flexible and structured as well.
- It is a process that is constantly evolving, adapting and refining strategies to achieve the financial goals of the organization.
- It includes a multidimensional and innovative approach to solve business problems.
- It assists in developing applicable strategies and oversee action plans to be consistent with business objectives.
- Analyzes factual information using financial analytical methods with quantitative and qualitative thinking.
- It uses economic and financial resources and focuses on the results and outcomes of the developed strategies.
- It provides solutions by analyzing problems in the business environment.
- It assists financial managers in making decisions regarding investments in the assets and financing of these assets.
Importance of Strategic Financial Management
A strategic financial management approach is to drive a decision-making process that prioritizes long-term business goals. Strategic financial management not only helps in defining company goals but also creates a platform for planning and managing plans to meet challenges along the way. It also includes laying out steps to drive the business toward its goals.
The aim of strategic financial management is to identify possible strategies capable of maximizing the market value of the organization. It also ensures that the organization follows the plan efficiently to achieve desired short and long term goals and to maximize value for the shareholders. Strategic financial management manages the financial resources of the organization to achieve its business objectives.
There are different ways of setting strategic financial management objectives. However, regardless of the method, it is important to use goal setting to enable conversations, ensure the participation of the main stakeholders, and identify achievable and striving strategies. The following are the two basic approaches to setting the goals:
SMART is a traditional approach for goal setting. It sets the criteria to create a business objective.
- can be achieved
FAST is a modern framework for setting the goals. It follows an iterative goal setting strategy that enables business owners to maintain flexibility and accept that goals or circumstances may change over time. It follows the criteria below for business objectives.
The management of the organization needs to decide on the goal setting approach that best suits its business as well as the requirements of strategic financial management.
Certain factors must be addressed while setting strategic financial management objectives, as follows:
Involvement of Teams
Other departments, such as information technology (IT) and marketing, are often involved in strategic financial management. Thus, these departments should be involved to help create the planned strategies.
Key Performance Indicators (KPIs)
The management team needs to identify key performance indicators (KPIs) that can be used to track progress toward each business objective. It is easy to identify some financial management KPIs because they involve working towards a specific financial goal; However, other KPIs may not be quantitative or track progress in the short term and help ensure that the organization is moving toward its goal.
It is important to determine how long it will take the organization to reach this specific goal. The management team needs to identify actionable steps on schedule and adjust strategies as necessary.
The strategies planned by the management should include steps that would put the business closer to achieving its goals. Such strategies can be marketing campaigns and sales initiatives which are crucial for a business to reach its goal.
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