What Is Strategic Financial Management?

Strategic financial management is the process of managing a company's financial resources to succeed and achieve its long-term financial goals. This includes reaching its objectives and maximizing the company's shareholder value over time. Strategic financial management involves understanding the economic and financial climate to make sound financial decisions about the company's finances, investments, and growth prospects.

Understanding Strategic Financial Management

Strategic financial management is about improving financial performance by 澳洲幸运5官方开奖结果体彩网:managing risk, creating profit for the business, and ensuring an acceptable 澳洲幸运5官方开奖结果体彩网:return on investment (ROI). Financiꩵal management is accomplished through business financial plans, setting up ☂financial controls, and financial decision-making.

Before a company can manage itself strategically, it needs to define its objectives precisely, identify and quantify its available and potential resources, and devise a specific plan to use its finances and other 澳洲幸运5官方开奖结果体彩网:capital resources toward achieving its goals.

Strategic financial management also involves understanding and properly controlling, allocating, and obtaining a company's assets and 澳洲幸运5官方开奖结果体彩网:liabilities. This includes monitoring operational financing items like ex✅penditures, revenues, accounts receivable and payable, cash flow, and profitability.

It encompasses the continuous evaluation, planning, and a💮djustment of keeping the company focused and on track toward long-term goals. When a company is managed strategically, it deals with short-term issues on an ad hoc basis in ways that do not derail its long-term 🔯vision.

Strategic vs. Tactical Financial Management

The term strategic refers to financial management practices that are focused on long-term success, as opposed to tactical management decisions, which relate to short-term positioning. If a company considers strategic considerations instead of tactical ones, it makes financial decisions based on long-term objectives rather than short-term metrics. To realꦉize those results, a firm sometimes must tolerate losses in the present.

Part of effective strategic financial management may involve sacrificing or readjusting short-term goals to attain the company's long-term objectives more efficiently. For example, a company that suffers a net loss may reduce its asset base by closing facilities or reducing staff and decreasing its operating expenses. These steps may result in restructuring costs or other one-time items that negatively affect the comp♛any's🙈 finances in the short term, but which position the company better to succeed in the long term.

These short-term versus long-term tradeoffs often need to be made with various stakeholders in mind. For instance, shareholders of public companies may discipline management for decisions that negatively affect a company's share price in the short term, even though the long-term health of the company becomes more solid by the same decisions.

The Elements of Strategic Financial Management

A company will apply strategic financial management throughout its organizational operations. This involves designing elements that will maximize the firm's financial resources and use them efficiently.

A firm needs to beဣ creative, as there is no one-size-fits-all approach to strategic management, and each company will devise elements that reflect its own particular needs and goals. However, some of the more common elements of strategic financial management could include the following.

Planning

• Define objectives precisely.
• Identify and quantify available and potential resources.
• Write a specific business financial plan.

Budgeting

• Help the company function with financial efficiency, and reduce waste.
• Identify areas that incur the most operating costs, or exceed the budgeted cost.
• Ensure sufficient 澳洲幸运5官方开奖结果体彩网:liquidity to cover operating expenses without tapping external resources.
• Uncover areas where a firm may invest earnings to achieve goals more effectively.

Managing and Assessing Risk

• Identify, analyze, and mitigate uncertainty in investment decisions.
• Evaluate the potential for financial exposure; examine 澳洲幸运5官方开奖结果体彩网:capital expenditures (CapEx) and workplace policies.
• Employ risk metrics such as degree of operating leverage calculations, standard deviation, and 澳洲幸运5官方开奖结果体彩网:value-at-risk (VaR) strategies.

Establishing Ongoing Procedures

• Collect and analyze data.
• Make consistent financial decisions.
• Track and analyze澳洲幸运5官方开奖结果体彩网: variance or differences between budgeted and actual results.
• Identify problems and take appropriate corrective actions.

Strategies Based on Industry

Just as financial management strategies will vary by company, they also can differ according to 澳洲幸运5官方开奖结果体彩网:industry and sector.

Firms that operate in fast-growing industries—like information technology or technical services—would want to choose strategies that cite their goals for growth and specify movement in a positive direction. Their objectives, for example, might include launching a new product or increasing 澳洲幸运5官方开奖结果体彩网:gross revenue within the next 12 months.

On the other hand, companies in slow-growing industries—like sugar manufacturing or coal-power production—could choose objectives that focus on protecting their assets and managing expenses, such as reducing administr♑ative costs by a certain percentage.

The Bottom Line

Strategic financial management refers to the long-term plans a company makes to grow in the long-term, and ultimately maximize value for the shareholders. Although exact strategies will vary, this typically entails setting precise objectives, and analyzing the company's advantages and resources in order to achieve those goals.