Strategic Financial Management – What is it?
Strategic financial management is the process of managing an organization’s finances in order to achieve its strategic goals.
This is a technique of management that uses various tools and resources in order to create a strategy. Strategic financial management will implement the chosen strategy in a goal oriented way. Strategic financial management involves overseeing the finances of a business and doing so with success in mind.
Financial management is a strategic discipline that focuses on creating a business strategy to maximize the value of the company. The strategy manager’s goal is to increase the profitability of the company and grow its core operations. The strategy managers also implemented financial controls and monitored activities.
In this field, the financial success of an organization is given top priority. To fill this crucial position, every industry looks for qualified candidates. An MBA in Financial Management is a great option. Here are six ways in which strategic financial management can help your business grow.
1. It provides a uniform basis for all parties involved
A system of strategic financial management provides a framework for integrating the goals of members of an organization. Firm executives can create procedures to help achieve their long-term goals by knowing their organization’s objectives. The goals of each department will be aligned with the overall plan and focused on key financial milestones.
2. Compares performance with the objective
By using strategic finance models you can combine important performance goals with management goals. Managers who are aware of the links between the departmental goals of a company and its long-term objectives can develop procedures that will improve the internal performance.
Individual success helps departments achieve internal goals, which then aids the strategic management of financial long-term objectives. When these goals are aligned at all levels of the organization, from individual performance to management, a common result is achieved.
3. Create KPIs
KPIs are numerical measurements that show progress towards specific goals. They may be quantitative, tied to a budget or indicate qualitative elements. Some examples include:
- Monthly Income
- Gain margin
- Customer satisfaction and experience
KPIs help track adjustments, team performances, and the efficiency in business operations. You get a complete picture and are motivated to keep looking for improvements. The management has to choose KPIs for tracking each goal’s progress.
Some KPIs are non-quantitative or measure short-term performance, but all of them help ensure that the company is heading in the right directions. Financial management KPIs are easily recognizable because they work towards a specific financial goal.
4. Prepares financial managers to create an environment of competition
They take into consideration the goals and achievements of their competitors in planning for strategic financial management. You can create a plan that takes into consideration the long-term impact of your competitor’s business strategy on your market by being aware of this potential.
A detailed financial plan analyses your competitors’ operations and their most likely decisions in order to create proactive plans for reacting to market events. If you think a competitor is going to expand their product range, you might need to prepare to do the exact same thing to remain competitive on the same market.
5. Establish a Timeline
Action planning is the first step in the strategy process. The management team must develop a timeline to achieve specific targets, and then modify the plan as needed.
Estimating the time it will take for a company to achieve a specific goal is crucial. The management team will decide what tasks are feasible based on the timeline and then adjust their strategy accordingly. Strategic financial management is therefore a dynamic, ongoing process.
6. Risk management
The long-term planning and resource allocation procedures that are associated with investment can expose organizations to risks. The potential rewards for riskier investments are often greater than those for safer investments, but the rate of return for some assets can be higher.
You may be able to take advantage of investment opportunities by assessing the risk that your company is willing to accept and the profit it must make. A sound financial management strategy can help finance managers manage and evaluate risks.
Strategic finance is crucial to business success. Strategic finance can help business leaders increase their chances of success by planning their financial frameworks, and developing goals.
