What is ‘Strategic Financial Management ‘
Strategic financial management refers to specific planning of the usage and management of a company’s financial resources to attain its objectives as a business concern and return maximum value to shareholders. Strategic financial management involves precisely defining a company’s business objectives, identifying and quantifying its resources, devising a plan for utilizing finances and other resources to achieve its goals, and establishing procedures for collecting and analyzing data, making financial decisions, and tracking and analyzing variance between budgeted and actual results to identify problems and take appropriate corrective actions.
BREAKING DOWN ‘Strategic Financial Management ‘
The term “strategic” essentially refers to financial management that is focused on long-term success.
Financial management involves managing all of a company’s assets and liabilities, including monitoring operational financing items such as expenditures, revenues, accounts receivable and accounts payable, cash flow, and profitability. Strategic financial management encompasses all of the above, along with ongoing evaluation and planning to keep company focused and on track to attain short-term and long-term goals with an overarching focus on maximizing the company’s profitability and value.
Part of strategic financial management may involve sacrificing or re-adjusting short-term goals in to attain the company’s long-term objectives more efficiently. For example, if a company suffers a net loss for the year, then it may choose to reduce its asset base through facility closures or staff reductions, thereby decreasing its necessary operating expenses. Taking such steps may result in restructuring costs or other one-time items that negatively impact the company’s finances further in the short term, but they put the company in a better overall position to move toward its long-term goals.
Elements of Strategic Financial Management
Strategic financial management is applied throughout a company’s organizational operations and involves elements designed to make the maximum efficient use of the company’s financial resources. Key elements of strategic financial management include budgeting, risk management, and review and evaluation.
Careful budgeting of a company’s financial resources and operating expenses is essential in strategic financial planning. Budgeting helps a company function with general financial efficiency, and it aids in identifying areas of the company that incur the largest amount of operating costs or that regularly exceed budgeted cost. Budgeting includes ensuring sufficient liquidity to cover day-to-day operating expenses without accessing outside financial resources. Budgeting also addresses the question of how a company can invest earnings to achieve long-term goals more effectively.
Strategic financial management also involves risk assessment and risk management, evaluating the potential financial exposure a company incurs by making capital expenditures (CAPEX) or by instituting certain workplace policies.
Since strategic financial management is all about maintaining focus on attaining a company’s long-term business goals, it necessarily includes developing and putting in place regular procedures for review and evaluation of how well the company is doing in terms of staying on track.