What are the objectives of strategic financial management?
Businesses may choose to use strategic financial management because it’s intended to drive decision-making that will prioritise business objectives. Utilising this approach helps businesses set clear company targets that factor in planning and preparing for any potential challenges that may arise. Its objective is to lay out solid and achievable steps that will drive businesses toward their main financial targets.
Why is strategic financial management important?
Strategic financial management is important to businesses because it essentially identifies the possible strategies for a company to maximise its market value and keep them on track to reaching long-term goals. This includes ensuring the strategic plan is followed efficiently: in both short-term actions and in the future.
Strategic vs. tactical financial management: what’s the difference?
Strategic and tactical financial management can be said to go hand-in-hand. Strategic planning lays out the long-term, broad goals that a company is aiming to reach. Tactical financial management planning occurs after the initial strategic plan has been outlined, and instead includes short-term steps and actions that need to be taken to achieve those broader goals. Tactical financial management is also reviewed or reexamined more regularly, monitoring if steps need to be changed.
What approaches should you take when setting goals for your strategic financial management?
Goal-setting is key to finalising strategic financial management plans and there are a few approaches you can use to ensure goals are achievable, ambitious, and will benefit the business. The first, hugely popular approach is SMART: specific, measurable, attainable, realistic, and time-bound. This is a great method for setting quantitative goals based on conversions.
The other common approach is FAST: frequent, ambitious, specific, and transparent. This approach is based more around how the business perceives its goals and helps them stay agile and flexible to change.
Management teams will often decide which approach to goal-setting is best suited for their specific business aspirations and working style.
What needs to be considered when determining your strategic objectives?
There are many things that need to be considered when determining a company's strategic objectives, from key players in the business goals to how to keep track of financial performance. Important factors include:
Key performance indicators (KPIs)
KPIs need to be determined so that the business can track its progress toward end goals. Some may include financial-based KPIs such as profit or conversion rates, whereas others may be non-numerical or simply track the short-term progress across a certain time period.
Timelines
Having set deadlines for short-term and long-term goals will help the business monitor progress and evaluate if they’re on track to hit company targets.
Team involvement
It’s vital to determine which departments will have a role in attaining companies' goals and what their contribution will need to include. Keeping it transparent company-wide will help to achieve progress more quickly.
Plans
Plans are at the heart of strategic objectives. Once you’ve determined KPIs, timelines and team involvement, you can develop a plan. You can identify your tactics by using a top-down approach, using your values and mission statements as true indicators of what tactics to employ.
What are the benefits of strategic financial management?
There are many advantages of businesses adopting strategic financial management – both in terms of financial and non-financial benefits. Having efficiently structured management enables the future of the organisation to be shaped more proactively, with growth being a key consideration.
Financial benefits include:
- Profitability management
- Solvency planning
- Liquidity management: monitoring cash balance and ensuring finances are kept in line with the long-term business objectives
- Understanding of competitive landscape: strategic management requires a more competitive analysis of the business market and an understanding of where the challenges lie and how to avoid them, thus protecting the company from potential losses.
Non-financial benefits include:
- More efficient decision-making
- Aligning company-wide goals: everyone in the business – employees and head of management alike – is aware of the direction the company is heading in and can work collaboratively to reach targets
- Common frameworks: similarly, all divisions will have goal transparency, know how to reach them and will encourage employees to think strategically against the plan rather than drifting off course
- Innovation and technology adaptation: with the future of the business more clearly established, they will be forced to review how they will grow with technology to become the market leader.
These are just a few of the key advantages of strategic financial management. For any kind of organisation, it can become a driving factor for financial growth and success.
