explain the importance of strategic planning in financing a business

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The Importance of Strategic Planning

Every successful business has a plan and knows where it is heading in the future. Setting a plan with goals, target dates, and a purpose should be finalized before embarking on a business. Taking the time on an ongoing basis to review the company's past performance, and predict its future performance, gives it a road map to follow.

Without strategic planning , which is knowing the current state of your business and where you want it to go, most businesses will fail. A strategic plan allows you to see what is important, how to get there, the pitfalls to avoid, and the noise to ignore. Below we discuss some of the reasons why strategic planning is important and how to implement it.

Key Takeaways

• Strategic planning is crucial for a business as it creates a map for a business to follow and course correct when need be.
• The first part of a strategic plan is the business plan, which outlines the purpose of the business, budgets, goals, and the mission statement.
• Making time to evaluate your business on an ongoing basis will allow you to determine how well your results are adhering to your plan. This will allow you to make adjustments or double-down on how the business is being run.
• Communicating your strategic plan to your employees is critical so that everyone is on the same page and working towards the same goals.
• Reviewing and following up on your business will highlight strengths and weaknesses in your business so that you can continue with what works well and eliminate what is hindering the growth of your business.

Making a Business Plan

The very first strategic planning most businesses do is a business plan . When you first start your business, you will likely have prepared a mission statement , a budget, and a marketing and promotion plan. The business plan is a good first step, but it needs to be reviewed and updated as the business continues and grows. If you shove it in a drawer and let dust gather on it, it won't serve as the foundation of your business, as it was meant to.

Using Goal-Based Planning

How you go about conducting strategic planning will depend on many variables, including the size of your business, the time frame included, and your personal preferences. The most common style of plan is goals-based. In this type of plan, you set goals for the business (financial and non-financial) and map out the steps needed to meet those goals.

For example, if your goal is to have $100,000 in revenues next year, the steps to get there might include bringing in five new clients a month and attending three trade shows. Whatever the goals you set for your business, they should be concrete and measurable so that you know when you reach them. Another method of strategic planning is mission-based.

When you first started your business, you likely developed a mission or values statement, outlining the purpose of your company and its overall reason for being. A mission-based strategic plan ties each part of the plan into the mission, to ensure that the company is always operating in the service of that mission.

For example, if your mission statement is to be recognized as a leader in the financial services sector and to help families become financially independent, your strategic plans should address how you will meet those goals.

Making Time

It can be difficult to find the time to plan your business. Other, more pressing priorities, like trying to bring in revenue , may grab your attention; however, carving out time regularly will help you keep on top of your business.

Blocking off a few hours a day or week to focus on your plan should be part of your business operations. During that time, you can examine the prior week's financial performance and update any marketing initiatives to make sure that your business is on track with your initial plan. If it's not, then you'll need to make adjustments to get back on track.

Regardless of how often you plan, make sure that you set it in stone in your day planner. Block off the time and don't let anything else get in the way. Turn off your cell phone and, if at all possible, go somewhere away from your office to plan in order to minimize distractions.

Promoting Communication

As a business owner, you will most likely have employees. It is critical to inform them of your strategic plan so that they are on the same page and working towards the same goal as you.

Including your staff in your strategic plan will instill a feeling of responsibility in their jobs that will help ensure productivity.

For example, if you have a sales team and your strategic plan involves bringing in five new clients a month, your sales team needs to be aware of this so that they know the goal to achieve. If they don't, perhaps they would be under the assumption that bringing in two new clients a month is excellent, when in actuality, it is only 40% of your goal. Without clear communication to your employees, your business will be a boat set adrift without any course to follow.

Following Up

A critical part of the planning process is reviewing your previous plan and comparing it to your actual results. Were you able to bring in five new clients last month? If not, why not? Tweak the plan going forward to account for changes in your business or the general economic climate. The more experience you get with the planning process and with the operational side of your business, the more accurately you will be able to plan.

Once you have had your business running for a while and block out time to follow up on your strategic plan, you will be able to determine where the strengths and weaknesses in your business lie. This would allow you to correct course, perhaps changing your business plan and goals slightly to focus on your strengths, while allowing you to eliminate your weakness, making your business stronger and increasing the likelihood of achieving your goals.

The Bottom Line

Planning out the future of your business is the best way to ensure success. Creating an initial plan and communicating that plan to your employees will ensure that everyone is working towards the same goal.

Taking out time to review your business's results and comparing them to your plan will help ensure that the right policies and procedures continue whereas those that are not benefiting the company will be removed. It may seem awkward and difficult at first to create a strategic plan, but with practice, you will be able to move your business in the right direction.

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Why Is Strategic Planning Important?

• 06 Oct 2020

Do you know what your organization’s strategy is? How much time do you dedicate to developing that strategy each month?

If your answers are on the low side, you’re not alone. According to research from Bridges Business Consultancy , 48 percent of leaders spend less than one day per month discussing strategy.

It’s no wonder, then, that 48 percent of all organizations fail to meet at least half of their strategic targets. Before an organization can reap the rewards of its business strategy, planning must take place to ensure its strategy remains agile and executable .

Here’s a look at what strategic planning is and how it can benefit your organization.

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What Is Strategic Planning?

Strategic planning is the ongoing organizational process of using available knowledge to document a business's intended direction. This process is used to prioritize efforts, effectively allocate resources, align shareholders and employees on the organization’s goals, and ensure those goals are backed by data and sound reasoning.

It’s important to highlight that strategic planning is an ongoing process—not a one-time meeting. In the online course Disruptive Strategy , Harvard Business School Professor Clayton Christensen notes that in a study of HBS graduates who started businesses, 93 percent of those with successful strategies evolved and pivoted away from their original strategic plans.

“Most people think of strategy as an event, but that’s not the way the world works,” Christensen says. “When we run into unanticipated opportunities and threats, we have to respond. Sometimes we respond successfully; sometimes we don’t. But most strategies develop through this process. More often than not, the strategy that leads to success emerges through a process that’s at work 24/7 in almost every industry.”

Strategic planning requires time, effort, and continual reassessment. Given the proper attention, it can set your business on the right track. Here are three benefits of strategic planning.

Related: 4 Ways to Develop Your Strategic Thinking Skills

Benefits of Strategic Planning

1. create one, forward-focused vision.

Strategy touches every employee and serves as an actionable way to reach your company’s goals.

One significant benefit of strategic planning is that it creates a single, forward-focused vision that can align your company and its shareholders. By making everyone aware of your company’s goals, how and why those goals were chosen, and what they can do to help reach them, you can create an increased sense of responsibility throughout your organization.

This can also have trickle-down effects. For instance, if a manager isn’t clear on your organization’s strategy or the reasoning used to craft it, they could make decisions on a team level that counteract its efforts. With one vision to unite around, everyone at your organization can act with a broader strategy in mind.

2. Draw Attention to Biases and Flaws in Reasoning

The decisions you make come with inherent bias. Taking part in the strategic planning process forces you to examine and explain why you’re making each decision and back it up with data, projections, or case studies, thus combatting your cognitive biases.

A few examples of cognitive biases are:

• The recency effect: The tendency to select the option presented most recently because it’s fresh in your mind
• Occam’s razor bias: The tendency to assume the most obvious decision to be the best decision
• Inertia bias: The tendency to select options that allow you to think, feel, and act in familiar ways

One cognitive bias that may be more difficult to catch in the act is confirmation bias . When seeking to validate a particular viewpoint, it's the tendency to only pay attention to information that supports that viewpoint.

If you’re crafting a strategic plan for your organization and know which strategy you prefer, enlist others with differing views and opinions to help look for information that either proves or disproves the idea.

Combating biases in strategic decision-making requires effort and dedication from your entire team, and it can make your organization’s strategy that much stronger.

Related: 3 Group Decision-Making Techniques for Success

3. Track Progress Based on Strategic Goals

Having a strategic plan in place can enable you to track progress toward goals. When each department and team understands your company’s larger strategy, their progress can directly impact its success, creating a top-down approach to tracking key performance indicators (KPIs) .

By planning your company’s strategy and defining its goals, KPIs can be determined at the organizational level. These goals can then be extended to business units, departments, teams, and individuals. This ensures that every level of your organization is aligned and can positively impact your business’s KPIs and performance.

It’s important to remember that even though your strategy might be far-reaching and structured, it must remain agile. As Christensen asserts in Disruptive Strategy , a business’s strategy needs to evolve with the challenges and opportunities it encounters. Be prepared to pivot your KPIs as goals shift and communicate the reasons for change to your organization.

Improve Your Strategic Planning Skills

Strategic planning can benefit your organization’s vision, execution, and progress toward goals. If strategic planning is a skill you’d like to improve, online courses can provide the knowledge and techniques needed to lead your team and organization.

Strategy courses can range from primers on key concepts (such as Economics for Managers ), to deep-dives on strategy frameworks (such as Disruptive Strategy ), to coursework designed to help you strategize for a specific organizational goal (such as Sustainable Business Strategy ).

Learning how to craft an effective, compelling strategic plan can enable you to not only invest in your career but provide lasting value to your organization.

Do you want to formulate winning strategies for your organization? Explore our portfolio of online strategy courses and download the free flowchart to determine which is the best fit for you and your goals.

About the Author

Strategic Finance: Understanding Its Role and Significance in Business Growth

✅ All InspiredEconomist articles and guides have been fact-checked and reviewed for accuracy. Please refer to our editorial policy for additional information.

Strategic Finance Definition

Strategic finance is a branch of finance that focuses on identifying opportunities, creating strategies, and making decisions that affect the long-term financial health and profitability of a business or organization. It combines financial management techniques with strategic planning and management skills to drive business improvement and add value to companies.

The Role of Strategic Finance in Business Planning

Strategic finance is an essential factor in every stage of a company's business planning process. Its impact can be felt as it aids in achieving long-term goals and driving the company towards success.

Setting Financial Objectives

In the phase of setting financial objectives, strategic finance acts as a guiding star. It helps establish much-needed clarity by setting both tangible and measurable financial objectives for the organization. Businesses can utilize those financial goals to develop key performance indicators (KPIs) throughout the company. From improving cash flows, reducing expenses or increasing profits, strategic finance helps create a solid direction for the organization.

Identifying Profitable Business Opportunities

Furthermore, strategic finance acts as a critical tool for identifying profitable business opportunities. This not only involves identifying potential new markets or products but also scrutinizing the financial feasibility of these opportunities. Through quantitative analysis and comprehensive financial modeling, strategic finance can offer substantial insights into the potential return on investment (ROI) and payback period of a given opportunity. This allows for informed decision-making and the potential reduction of risks involved.

Managing Financial Resources

Finally, the role of strategic finance in managing financial resources cannot be understated. It can provide a clear overview of current company resources and help in determining the best ways to allocate them for maximum efficiency. This can involve deciding on investments, choosing between resource allocation among different business units, or deciding on the potentially lucrative but risky project ventures. Strategic finance can also aid in understanding and managing financing options, be they through equity, debt, or reinvested profits.

Overall, strategic finance has a critical role in instilling financial discipline, encouraging planning, supporting decision-making, and ultimately, navigating the company towards its strategic goals. It makes for a more informed, rigorous, and structured approach to financial management within an organization.

Challenges in Implementing Strategic Finance

Lack of financial skills.

One significant challenge faced during the implementation of strategic finance in a company is the lack of financial skills among the employees, particularly those in managerial positions. Not every team member has the necessary understanding or expertise in financial matters. High-level financial decisions and strategies require a deep understanding of financial reporting, cash flow analysis, budgeting, investment decisions, and risk management. If these skills are lacking, a company can struggle to properly implement strategic financial strategies and might make the wrong decisions that could cost it dearly in the long run.

Consider, for example, a situation where a company has to decide between investing in a new product line or improving an existing one. This requires an understanding of both the market conditions and the company's financial state. A manager without a strong financial background might struggle to comprehend the cost implications, potential returns, and relative risks of each choice.

Difficulty in Predicting Future Financial Scenarios

Forecasting future financial scenarios is a core component of strategic finance. Yet, it is also one of the hardest tasks to pull off with accuracy. Economies are volatile, unpredictable, and influenced by an array of factors that can change without warning. Thus, basing strategic finance decisions on predicted future scenarios is always fraught with risk.

Market trends, inflation rates, changes in regulatory regimes, political stability, technological advancements, and even global pandemics, as seen with COVID-19, can significantly impact the accuracy of financial forecasts. Without a clear or accurate prediction, the implementation of strategic finance will lack direction and effectiveness.

Aligning Strategic Plans with Financial Plans

Tying strategic plans with financial avenues is crucial in strategic finance. However, aligning these two can present unique challenges. A company's strategic goals might be ambitious and far-reaching, while its financial resources may be limited. Achieving alignment between the two requires a delicate balance of optimism and prudence.

In practice, this alignment requires regular reviews and revisions of both the strategic and financial planning. Understanding the implications of strategic decisions on a company's financial health and profitability, and vice versa, is vital. Without this alignment, a company might end up implementing strategies that it cannot financially sustain, leading to difficulties in its growth and sustainability.

In conclusion, implementing strategic financial planning is a critically important, yet complex task. It requires a multidimensional skill set, a clear grasp of current and future financial scenarios, and the nimbleness to align strategic plans with financial realities. Even then, the risky and unpredictable nature of business environments means there is no guarantee of success. Defying these challenges and creating robust strategic financial plans is what sets apart successful businesses from the rest.

Strategic Finance and Risk Management

In the world of strategic finance, risk management plays a crucial role. It overlaps in manifold ways and helps to ensure the stability and growth of a company. Risk management and strategic finance are both driven by the primary goal of value creation.

Aligning Strategic Finance and Risk Management

Strategic finance and risk management, when combined, can drive effective decision-making within a business. Companies can use data and key metrics to identify, assess, and manage risks while at the same time determining investment strategies and meeting other financial aims. In order to illuminate the connection between these two areas, let's examine some significant areas of overlap.

Risk Management as a Part of Strategic Finance

Firstly, strategic finance inherently includes a level of risk management. In essence, to make any financial decision or to set out any financial strategy, an organization must first look at the risks involved. This would range from operational risks, such as production delays, to financial risks, such as fluctuating exchange rates or economic downturns. A well-constructed strategic financial plan should include steps to mitigate these risks.

Predictive Modeling

Strategic finance also takes into consideration predictive modeling. By using statistical techniques to forecast future outcomes, financial leaders can anticipate potential risks and uncertainties. This in turn, enhances the company's preparedness to deal with the possible impacts and diminishes the consequences when challenges emerge.

Response to Risk

One of the keys to risk management lies in the response to risk. Here again, strategic finance plays a role, as it guides the decision-making process in relation to identified risks. Options might include transferring the risk, avoiding the risk entirely, or accepting the risk and reducing its impact.

Integrating Risk Management and Strategic Finance

To sum up, integrating risk management strategies into strategic finance can help organizations navigate challenges and set a clear path towards their predetermined financial objectives. This holistic viewpoint enables companies to optimize their financial performance, manage operational risks, and secure their route towards sustainable growth. Strategic finance, when executed well, is far more than just crunching numbers—it’s about a forward-looking approach that takes into account a company's risk profile and growth goals.

The Impact of Strategic Finance on Decision Making

Role of strategic finance in decision making.

Superior decision-making is the end result of adept strategic finance. It offers the tools necessary for businesses to evaluate their financial situation and to plot a course for the future. This function is not limited to mere fiscal management. It goes further to encompass the overall growth strategy of an organization, grappled with essential decisions pertaining to investment, cost management, and risk assessment.

Strategic finance steers organizations in identifying financial opportunities, quantifying risks, and allocating resources effectively. It helps in understanding the financial implications of strategic choices and initiatives. For instance, decisions on whether to pursue aggressive expansion or maintain current operations are guided by strategic finance assessments.

Incorporating Data Into Decision Making

In the era of data-driven decision making, strategic finance becomes even more crucial. Through financial modeling and analysis, it aids in interpreting and leveraging data to make informed decisions. Combining financial models with other key business metrics can help evaluate the cost-effectiveness of operational strategies and gauge the potential return on investment from different ventures.

Navigating Uncertainty and Risk

Furthermore, strategic finance allows organizations to navigate uncertainties and manage risks effectively. By conducting scenario analysis and stress testing, it can assess the financial impact of potential risks and develop preventive actions to counter them. This proactive approach to risk management equips businesses with financial resilience and lessens the potential negative impact of unfavorable market trends or unforeseen circumstances.

Accelerating the Decision-Making Process

Strategic finance can also enhance the speed and efficacy of decision making. Through real-time financial monitoring and forecasting, it provides timely insights that help businesses respond quickly to market fluctuations and seize emerging opportunities. Additionally, by identifying non-performing assets or strategies, it empowers organizations to pivot their direction as needed, thereby reducing wastage of resources and optimizing profitability.

To conclude, strategic finance serves as a catalyst in refining the decision-making process. It merges financial acumen with strategic insights, thereby fostering informed decisions that drive business growth and sustainability. Its relevance in today's variable business environment underscores its significance, establishing it as an indispensable tool in the organizational arsenal for sustained success.

Strategic Finance and Stakeholder Value Creation

In order to fully understand the link between strategic finance and shareholder value creation, it's crucial to delve into the strategic financial decisions that companies make and how that impacts profitability and consequently shareholder value.

Decision Making and Shareholder Value

Strategic finance plays a key role in facilitating informed decision-making. It equips organizations with vital data that they can use to optimize their financial and operational decisions, for instance, whether to invest in a new product line, an existing business segment, or even foray into a new geographical market.

Such decisions directly shape a company's revenue and cost structure. By making data-driven financial decisions, firms can maximize revenue streams while minimizing costs – what ultimately translates to higher profits that can be distributed among shareholders as dividends or reinvested into the business for long-term growth.

Cost of Capital and Financial Performance

Another crucial element of strategic finance linked to shareholder value is the management of a company's cost of capital. In essence, every business has to balance its capital structure, ensuring an optimal mix of debt and equity financing.

The cost of capital is fundamental to a business's financial performance – lower costs mean higher profitability, translating to increased shareholder value. Strategic finance helps in determining the most cost-effective ways to source funds, taking into consideration interest rates, levels of risk, and anticipated return on investments.

Cash Flow Management & Profitability

Cash flow management is another cornerstone of strategic finance that affects shareholder value creation. Effective management of operational, investment, and financial cash flows ensures long-term business sustainability and investment attractiveness.

Strategic decisions around cash flow allocation can influence a company's competitiveness and profitability. For instance, if a firm decides to allocate more resources to innovation and R&D, such decisions may yield new products or solutions that increase market share, drive sales growth, and ultimately lead to higher shareholder value.

In conclusion, strategic finance contributes to shareholder value creation by driving sound strategic decisions that enhance profitability. This, in turn, leads to increased dividends and improved stock value, directly benefiting the shareholders.

Strategic Finance in Mergers and Acquisitions

In any merger or acquisition, strategic finance serves as the backbone that directs the crucial decision-making process. During these business maneuvers, it is essential to evaluate the financial feasibility and ensure the intended result aligns with the company's overall corporate strategy.

Financial Planning in Mergers and Acquisitions

It's crucial to understand that strategic finance doesn't just involve crunching numbers in a spreadsheet. It involves a comprehensive analysis to assess the long-term viability of a potential endeavor. Strategic finance comes into play here by facilitating forward-thinking financial modeling and scenario analysis.

By reviewing the financial health of both the acquiring and target company, strategic financiers can predict the potential profitability of the merged entity, identifying any financial hurdles and addressing them proactively. This can include considerations about debt, assets, revenue streams, and potential for growth.

These insights influence the decision on the deal structure, from the method of financing the deal to determining an equitable price for the transaction.

Execution of a Merger or Acquisition

Once the planning phase completes and the stakeholders have agreed to proceed, strategic finance becomes integral in the post-merger integration phase.

Financial professionals need to implement strategies that drive synergy and achieve the expected financial outcomes. This could involve strategically eliminating redundant costs, identifying and nurturing profitable business segments, and working on possible debt restructuring.

Additionally, strategic finance involves cost management, risk management, and a comprehensive dashboard to keep track of the financial realization of these synergies. It is not a static process but requires adapting to real-world situations that might be different from initial predictions.

In summary, the role of strategic finance in mergers and acquisitions is as much about foresight and planning as it is about review and modification. The strategic finance team is crucial in enabling companies to make informed decisions that lead to profitable outcomes.

Strategic Finance and Sustainable Growth

In the context of sustainable growth, strategic finance plays a pivotal role. Organisations that manage their finances strategically often weather trends and market fluctuations more robustly than those which do not. It equips them with the resilience and resourcefulness needed for sustainable growth.

How Strategic Finance Supports Sustainable Growth

Strategic finance offers an integrated viewpoint, considering not just the immediate implications of decisions, but also how they link to the organisation's broader goals. It seeks to match financial tactics with strategic goals, forming a bridge between where the organisation is now and where it aims to be.

For example, an organisation might strategically cut operational costs to fund an expansion. Here, short-term sacrifices are offset with long-term benefits of entering new markets and boosting revenue. This balance between short-term achievements and long-term growth strategies is one of the key aspects of strategic finance.

Importance of Balancing Short-Term Achievements and Long-Term Growth Strategies

Balancing short-term achievements with long-term strategies is a crucial skill within strategic finance. Although quick successes can boost morale and provide immediate returns, focusing too heavily on the short-term can undermine sustainability.

In an expanding game where instant gratification often trumps long-term sustainability, strategic finance offers a way to remain focused. It uses financial strategies to steer organisations towards sustained growth, encompassing everything from capital structure decisions to investment options.

For instance, a company might have to choose between introducing a new, potentially profitable product (short-term gain) and investing in a facility upgrade that could enhance overall productivity (long-term growth). In such scenarios, strategic finance supports the evaluation of different options and their long-term implications.

Overall, strategic finance provides an invaluable toolkit for achieving sustainable growth. It enables organisations to plan, manage, and monitor their financial resources efficiently so they can navigate through uncertainties and realise their strategic objectives.

Role of Technology in Strategic Finance

In contemporary strategic finance, technology has become an integral part of financial strategy development and execution. Let's delve into the ways technology has been deployed in this field, especially in the context of Artificial Intelligence (AI) and machine learning.

###AI and Machine Learning in Strategic Finance

Artificial intelligence is deployed in strategic finance in various ways. For example, AI applications can sift through vast amounts of financial data to identify patterns that human analysts may overlook. This capability provides financial strategists with critical insights, enabling them to make more informed decisions about resource allocation, risk management, and investment strategies.

Machine learning, a subset of AI, builds on this by allowing financial systems to 'learn' and improve performance from the analysis of data over time, without being explicitly programmed. Machine learning algorithms can process vast amounts of complex, high-dimensional data to detect and exploit patterns and correlations. This fast, automatic, and efficient processing capability is a key driver in improving financial forecasting accuracy in strategic finance.

###Technological Tools for Better Analysis

Beyond AI and machine learning's broad impacts, technology generally equips organizations to better handle financial data and analysis. Technological tools like advanced data analytics, financial modeling software, and software-as-a-service (SaaS) financial platforms have fundamentally transformed the way financial data is collected, stored, analyzed, and interpreted.

These tools have helped transform strategic finance into a more data-driven discipline, reducing reliance on intuition or guesswork. They have also made financial forecasting more efficient and accurate, helping organizations make strategic decisions with a clearer understanding of potential financial outcomes.

###Challenges

While technology has undoubtedly provided significant benefits, it's essential to consider the challenges faced with these advancements. Privacy concerns, data security issues, the need for new skill sets among financial professionals, and the risk of over-dependence on technology are some of these challenges. As a result, strategic finance professionals must stay up-to-date with these evolving technologies and appreciate the possible implications of their use.

This nuanced view of the role of technology in strategic finance underscores its importance but also its complexity. As AI, machine learning, and other technological tools continue to develop, so too will the nature of strategic finance.

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Strategic Financial Management

It involves the long-term planning and management of an organization's financial resources to achieve its strategic objectives.

Mr. Arora is an experienced private equity investment professional, with experience working across multiple markets. Rohan has a focus in particular on consumer and business services transactions and operational growth. Rohan has also worked at Evercore, where he also spent time in private equity advisory.

Rohan holds a BA (Hons., Scholar) in Economics and Management from Oxford University.

What Is Strategic Financial Management?

Features of strategic financial management, strategic vs. tactical financial management, goal-setting process, benefits of strategic financial management.

Strategic Financial Management (SFM)  is  planning, oversight, and management of an organization's financial resources to accomplish its long-term goals and objectives. 

Strategic Financial Management involves aligning financial decisions with the organization's overall strategic direction, ensuring financial stability, sustainability, and value creation.

Effective financial management is essential for organizations to thrive and remain resilient in today's dynamic and competitive business landscape. 

Organizations can chart a strategic course that supports growth, innovation, and market expansion by setting clear financial goals and developing comprehensive financial plans.

It involves analyzing the external environment, market trends, and industry dynamics to identify opportunities and mitigate risks. 

Strategic Financial Management requires assessing the financial implications of various strategic options, evaluating investment projects, and aligning financial resources to capitalize on opportunities that align with the organization's vision.

Moreover, SFM plays a crucial role in managing financial risks and uncertainties. It involves developing risk management strategies to protect the organization from market volatility, credit default, liquidity challenges, and other potential threats. 

Another aspect of SFM is optimizing the capital structure of an organization. This involves determining the appropriate mix of debt and equity financing to fund operations and investments. 

By analyzing the cost of capital , capital markets, and the organization's risk appetite, strategic financial management enables organizations to strike a balance between financial leverage , cost of funding, and shareholder value .

Furthermore, it enhances decision-making processes across the organization. 

It gives decision-makers fast access to reliable financial data, empowering them to analyze project viability, evaluate investment opportunities, and make decisions that align with the organization's strategic goals.

Key Takeaways

• Strategic financial management involves the long-term planning and management of an organization's financial resources to achieve its strategic objectives.
• SFM requires setting clear and measurable financial goals using frameworks like SMART (Specific, Measurable, Achievable, Relevant, and Time-bound).
• SFM includes developing long-term financial plans and budgets to guide resource allocation and capital investment decisions.
• SFM involves making strategic decisions related to capital structure, investment strategies, mergers and acquisitions, and other financial initiatives.
• SFM considers external factors such as market conditions, industry trends, and regulatory requirements when formulating financial strategies.

Here are some key features of strategic financial management that contribute to running a business effectively:

1. Financial Planning

Strategic financial management entails creating thorough financial plans that complement the overall aims and objectives of the organization. This includes forecasting future financial needs, setting budgets, and establishing financial targets.

2. Capital Structure Management

Strategic financial management involves determining the optimal mix of debt and equity to finance the company's operations. 

This entails determining the cost of capital, examining various funding options, and managing the business's capital structure to maximize shareholder value.

3. Investment and Project Evaluation

Strategic financial management involves assessing potential investment opportunities and evaluating the financial viability of various projects. 

This entails performing cost-benefit assessments, estimating investment returns, and determining how best to distribute resources among various initiatives.

4. Risk Management

Strategic financial management includes identifying and managing financial risks that could impact the organization's performance. 

This involves implementing risk management strategies such as diversification, hedging, and insurance to mitigate potential financial risks and uncertainties.

5. Financial Performance Analysis

Strategic financial management involves monitoring and analyzing the company's financial performance to assess its overall health and make informed decisions.

This includes analyzing financial statements, key performance indicators (KPIs), and financial ratios to evaluate profitability, liquidity, efficiency, and other important financial metrics.

6. Mergers and Acquisitions (M&A)

This includes conducting due diligence, valuing potential targets, negotiating deal terms, and integrating acquired companies to achieve synergies and enhance shareholder value.

7. Stakeholder Management

This involves effectively communicating with and managing relationships with various stakeholders, including shareholders, lenders, investors, and regulatory authorities. 

This includes providing timely and accurate financial information, addressing concerns, and maintaining transparency to build trust and confidence.

8. Long-Term Financial Strategy

This includes setting financial objectives, formulating strategies to achieve them, and regularly reviewing and adjusting the strategy based on changing market conditions and business dynamics.

Strategic and tactical financial management are two distinct approaches to managing finances within an organization. 

While they are related, they differ in terms of their scope, focus, and time horizon. Here's an overview of the difference between strategic and tactical financial management:

When setting goals for strategic financial management, it is important to adopt a systematic and comprehensive approach. Here are two key approaches to consider: SMART goals, fast goals, and the integration of both approaches.

1. SMART Goals

SMART is an acronym that stands for Specific, Measurable, Achievable, Relevant, and Time-bound. Let's break down each component:

• Specific:  Goals should be precise and focused. Define your goals in terms of money, such as boosting sales by a given percentage or cutting costs in a particular region.
• Measurable:  Establish concrete metrics to track progress and determine success. Quantifiable targets allow for objective assessment and enable you to make informed decisions based on data.
• Achievable :Goals should be realistic and attainable within the resources and capabilities of the organization. Assess the feasibility of your goals based on available resources, market conditions, and the organization's capabilities.
• Relevant: Align financial goals with the overall strategic objectives of the organization. Ensure that the financial goals contribute directly to the broader mission and vision of the company.
• Time-bound: Set a clear timeline for achieving your financial goals. Deadlines help create a sense of urgency and accountability. Breaking down long-term goals into shorter milestones can facilitate progress tracking.

2. Fast Goals

In addition to the SMART framework, organizations can benefit from adopting fast goals emphasizing speed, adaptability, and continuous improvement.

Fast goals are characterized by agility and flexibility, enabling organizations to respond quickly to changes in the business environment. 

Instead of concentrating primarily on long-term goals, they involve defining short-term goals that can be accomplished within a few weeks or months. 

Fast goals encourage experimentation, learning, and iteration, allowing for rapid adjustments based on feedback and emerging opportunities or challenges.

3. Integration of SMART and Fast Goals

An effective approach is integrating the SMART and fast goal-setting methods. By combining the clarity and precision of the SMART framework with the nimbleness and adaptability of fast goals, organizations can strike a balance between long-term planning and short-term responsiveness. 

Set overarching SMART goals that align with the organization's strategic direction, and complement them with a series of fast goals that can be adjusted and updated more frequently. 

This approach enables organizations to maintain focus on long-term objectives while remaining agile in an ever-changing business landscape.

When setting goals for strategic financial management, it is advisable to employ the SMART framework for clear, measurable, achievable, relevant, and time-bound objectives. 

Additionally, integrating fast goals can provide the flexibility and agility required to respond quickly to market dynamics and drive continuous improvement.

Because it involves analyzing, planning, and controlling an organization's financial resources to effectively achieve its objectives, SFM has many benefits.

Here are some key benefits of strategic financial management:

1. Improved Financial Performance

The main purpose of strategic financial management is to optimize the allocation of financial resources for improved performance. 

By effectively managing cash flow , budgeting, and investment decisions, organizations can maximize their profitability and generate higher investment returns.

2. Optimal Capital Structure

Strategic financial management involves determining the optimal capital structure of an organization. Capital structure is the complex structuring and balancing of debt and equity used to financially support a business's operations.

Specifically, it assists in achieving a balance between debt and equity financing while taking into account elements like capital costs, risk tolerance , and tax ramifications. 

Maintaining an optimal capital structure can minimize the cost of capital and maximize shareholder value.

3. Risk Management

Strategic financial management incorporates risk management practices to identify, assess, and mitigate financial risks. It involves developing strategies to manage risks associated with market volatility, credit default, liquidity, and operational challenges. 

Organizations can safeguard their financial health and protect their assets by implementing effective risk management measures.

4. Efficient  Resource Allocation

Strategic financial management involves prioritizing financial resources to achieve strategic objectives. It helps allocate funds to projects or initiatives that align with the organization's goals and have the highest potential for returns. 

This ensures efficient utilization of resources and minimizes wasteful spending.

5. Stakeholder Confidence

Effective strategic financial management instills confidence among stakeholders, including shareholders, investors, lenders, and regulators. It demonstrates the organization's ability to manage its finances prudently, meet financial obligations, and generate sustainable growth. 

This can lead to improved access to capital, better credit ratings, and increased investor trust.

6. Competitive Advantage

Strategic financial management contributes to the organization's competitive advantage by optimizing financial decisions and resource allocation. Additionally, it facilitates strategic partnerships and mergers/acquisitions that can enhance market position and growth prospects.

Strategic financial management is a critical component of organizational success, encompassing various processes and practices that align financial goals with overall strategic objectives. 

One of the key advantages of strategic financial management is improved financial performance. By effectively managing cash flow, budgeting, and investment decisions, organizations can maximize profitability and generate higher investment returns. 

This leads to increased shareholder value and financial stability.

Strategic financial management also enhances decision-making by providing decision-makers with timely and accurate financial information. This enables informed assessment of investment opportunities, project viability evaluation, and identification of potential risks. 

With better decision-making, organizations can make choices that align with their strategic direction and create long-term value.

Furthermore, strategic financial management contributes to the long-term sustainability of organizations. 

By aligning financial management practices with strategic goals, organizations can adapt to changing market conditions, manage risks effectively, and seize growth opportunities. Essentially this attempts to ensure a business's resilience and longevity in a dynamic business environment.

The ability to optimize capital structure is another benefit of strategic financial management. By determining the right mix of debt and equity financing, organizations can minimize the cost of capital and maximize shareholder value. 

This enables efficient utilization of financial resources and supports sustainable growth.

Effective strategic financial management also includes robust risk management practices. Organizations can identify, assess, and mitigate financial risks through proactive measures. 

This helps safeguard the organization's financial health, protect assets, and maintain stakeholder confidence.

Furthermore, it enables efficient resource allocation by prioritizing financial resources based on strategic objectives. This ensures that funds are directed towards initiatives that align with the organization's goals and have the highest potential for returns. 

All in all, strategic financial management, and more specifically efficient resource allocation, is necessary for optimizing organizational performance and minimizing wasteful spending.

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What Is Strategic Finance, and Why Is It Important?

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Gone are the days when finance management was just about keeping the books straight and monitoring expenses. These days, it involves problem-solving and identifying collaborative opportunities, as well as designing guides and outlining growth initiatives to help companies achieve their goals. 

In modern finance, the role of the CFO has evolved to include strategist and technology expert; instead of spending most of their time on low-value tasks, finance professionals focus more on critical, strategic and operational decisions to improve business performance.

By building a strategic finance operation, businesses can leverage the latest technology to free up time and resources, proactively using data and strategy to grow their businesses and reach their goals. 

This guide will provide insights into how modernizing your financial team and processes will enhance a proactive, forward-looking approach.

What Is Strategic Finance? 

The difference between strategic finance and fp&a, strategic finance management: role profile at a glance, strategic finance solutions: what to look for in a consulting firm.

Strategic finance is a proactive approach to financial decision-making that places achieving the company's long-term objectives as a top priority.

Strategic finance uses analysis to inform decision-making and ensure financial resources are shrewdly allocated to achieve long-term success.

No matter the size, adopting strategic finance helps businesses mitigate risks and create sustainable financial strategies that provide a meaningful return on investment (ROI).

Traditional finance centers on analyzing past financial performance and making decisions based on historical data.

However, the three-statement model - balance sheet, cash flow , and income statement - is no longer sufficient to support the strategic, financial decision-making required in today's dynamic business landscape. 

Today, high-growth companies rely on a plethora of SaaS tools to operate their businesses, including enterprise resource planning (ERP), marketing suites, customer relationship management (CRM), human resources (HR) systems, payment systems, and more.

Since finance leaders are not often involved in the day-to-day operations of other departments, they tend to be unaware of significant financial implications that could affect the company's long-term growth.

Similarly, operational data is often analyzed on a monthly or quarterly basis, necessitating that businesses play catch-up with their strategic needs.

This is where strategic finance comes in. 

By incorporating real-time, operational data into financial analysis, businesses can make more informed decisions that are aligned with their strategic objectives.

This approach allows businesses to move from reactive financial analysis to proactive analytics that support their long-term growth plans. Businesses can use strategic analysis to create a financial forecast , by examining current operational issues before building an action plan.

Many companies still rely on traditional Financial Planning and Analysis (FP&A) methods for many reasons. While FP&A may have played a pivotal role in helping finance professionals evolve from being mere scorekeepers to becoming valued advisors in corporate development, it can be siloed, limiting collaboration within organizations.

With the advent of SaaS-driven technologies and increasingly complex business processes, strategic finance provides forward-looking insights based on real-time data and integrated platforms that act as intelligent building blocks for financial models. 

Strategic Finance and FP&A are both critical functions in finance, but they differ in their scope and the tools they use:

• Tools & Software: FP&A has relied heavily on Excel spreadsheets to build budgets and forecasts; strategic finance uses an integrated software system that provides real-time financial data, multiple-scenario-functionality, and advanced analytics tools to increase profitability and achieve strategic objectives, including revenue growth, market-share gains, spend management, supply-chain management, and cost reduction.
• Goals: While FP&A focuses on building short-term budgets and long-term financial forecasts for business plans, strategic finance expands business intelligence, using real-time data analysis to make informed decisions and develop business strategies.
• Metrics: FP&A analyzes financial metrics like revenue, profit margins, and cash flow. In contrast, strategic finance goes beyond numbers and examines non-financial metrics like market share, customer satisfaction, and employee productivity.
• Time Horizon: Typically, FP&A focuses on short-term budgeting and financial planning, while strategic finance has a broader scope and focuses on long-term business growth and cost reduction. 
• Scope: FP&A is a narrower function, focused on financial analysis and planning by building financial models and creating budgets and forecasts to analyze data and generate reports. In contrast, strategic finance uses key performance indicators (KPIs) and real-time dashboards to monitor progress and adjust strategies as necessary. 
• Accessibility : Unlike FP&A, strategic finance focuses on presenting financial data in a way that the entire organization can understand. This approach makes financial data accessible to all stakeholders, providing a more holistic view of the business.

While both strategic finance and FP&A are crucial functions within a company's financial management, by relying on FP&A, organizations run the risk of being stuck with a backward-looking finance function that relies on decentralized data and cumbersome manual processes.

Strategic finance requires a broad range of skills, including financial analysis, strategic thinking, and communication. The following are some key responsibilities of a Strategic Finance Manager:

• FP&A: Developing and implementing financial plans that align with the company's long-term goals and objectives is a given. This includes forecasting, analyzing data, and developing strategies to optimize financial performance.
• Budget Management: This involves managing finances to ensure the company operates within its financial means and doesn’t exceed its budget. This includes ensuring that financial resources are smartly allocated across different departments and projects, assessing the financial viability of various projects and initiatives, and identifying opportunities to cut costs. 
• Risk Management: This includes identifying and mitigating financial risks that could impact financial performance, including market, credit, and operational risks. Developing a robust risk-management framework and implementing effective risk-management strategies helps protect financial assets and expand goals.
• Performance Measurement: This entails developing and implementing performance metrics to track the financial performance of the company and identify areas for improvement. This role facilitates collaboration with other departments and stakeholders across the organization and involves working closely with departmental heads and senior management to align financial strategies with the company's broader goals and objectives.
• Stakeholder Management: Managing the company's financial relationships with external stakeholders like investors, creditors, and regulatory bodies includes preparing financial reports and statements, communicating performance to stakeholders, and ensuring compliance with financial regulations and standards. 
• Market Analysis : In addition to these core responsibilities, a Strategic Finance Manager must have a deep understanding of the industry and market trends, as well as the company's competitive landscape.

In today's competitive business environment, companies are increasingly relying on consulting firms to provide strategic financial solutions that can help them achieve their goals and drive long-term growth.

From FP&A to risk management and investment strategy, consulting firms offer a range of services that can help companies navigate complex, financial challenges.

The sheer number of seemingly-qualified consulting firms can make the choice overwhelming. Here are some factors to consider when making a decision: 

• Expertise and Experience: The first thing to look for in a consulting firm is a proven track record of delivering high-quality, strategic, finance solutions to clients in your industry. For example, over 4,000 organizations rely on Jirav software for their financial planning, which enables the platform to constantly refine integrations to give businesses instant access to key insights and meet unique business needs. 
• Range of Services: When selecting a consulting firm, an ideal choice should offer a variety of strategic finance solutions that include financial planning automations , like financial modeling and forecasting, budgeting, risk management, and investment strategy. Having access to a wide range of solutions will allow you to leverage the expertise opportunities that drive your financial planning initiatives forward. 
• Customization and Flexibility: It’s important to work with a company that can provide solutions for your unique needs. Similarly, you should prioritize solutions that help you adapt to changes in your business environment and adjust your approach accordingly.
• Communication and Collaboration: Look for a firm that has a team of experts who are easy to work with, responsive, and able to communicate complex financial concepts in a clear and concise manner. A good consulting firm should also be willing to collaborate closely with your team and take into account your input and feedback throughout the process.
• Value for Money: Take stock of pricing, deliverables, and commitment to delivering high-quality results, to determine a firm's reputation and evaluate their value proposition.

Ultimately, strategic finance is the key to unlocking the full potential of finance professionals in today's SaaS-driven world. Selecting the right consulting firm to simplify your FP&A is key for business success. 

With its cutting-edge technology and commitment to delivering quick insights, Jirav offers the best solution for streamlining your FP&A processes. Through accurate forecasts and budgeting, you can compare financials with one click and make informed, data-driven decisions that will drive long-term growth. 

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March 20, 2023

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What Is Strategic Finance? (Step by Step Guide)

What is Strategic Finance?

What are the objectives of strategic finance, what are the limitations of strategic finance, how to develop a strategic finance strategy, 1. explore & define goals, 2. gather & analyze data, 3. create budget & develop strategy, 4. implement strategy.

Managing a company’s finances is a complex process, regardless of the approach taken. Strategic finance is a popular approach that focuses on strategy rather than tactics. In other words, it focuses on long-term goals and objectives, even if this means accepting short-term losses that will help achieve long-term gains.

There is no recipe for strategic financial management, as the objectives will depend on the business model, the industry, and the vision and priorities of the company’s management. In this article, you will learn about strategic finance, its main objectives, and its limitations. Finally, you will learn about the elements involved in strategic financial management.

Strategic Finance, also known as strategic financial management, is a long-term approach to managing a company’s finances. Unlike tactical financial management, which focuses on short-term gains, strategic financial management sets long-term goals and objectives for the company and manages its finances accordingly, sometimes incurring short-term losses.

There are many advantages to the strategic approach, but there are also disadvantages, as its implementation and execution can be expensive and time-consuming and requires a long-term commitment to objectives. Additionally, since it relies on estimates and predictions that may change due to external factors, it may become difficult or unwise to stick too closely to the original strategy.

The objectives of strategic financial management are concerned with creating profits, increasing market value, and maximizing the return on investment for shareholders. Additionally, adherence to the plan needs to be monitored to evaluate progress. This often involves sacrifices in the short term to facilitate long-term objectives.

Strategic management requires continuous monitoring of progress, as well as making the necessary adjustments to the planning to ensure the company meets its long-term objectives. As a result, this approach is expensive and time-consuming, but it can be much more profitable in the long run than a tactical approach.

What Is a Cash Flow Statement (And How to Prepare It)

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Like any approach, strategic financial management has some disadvantages and limitations. Below, you have a summary of the main limitations of this approach.

• Time-consuming
• Relies on predictions
• Short-term/long-term goals conflict

Strategic finance is an approach rather than a technique, so there are many different ways in which to apply it to your company’s financial management. The specific goals that you set will depend on multiple factors, including your business model and your industry. However, there are some core elements that can help you develop your own strategy.

Developing a financial strategy is a complex process, so you should enlist the help of people who are knowledgeable about financial management to ensure that what you propose is achievable. The steps included below are general guidelines that account for the main elements of strategic financial planning. However, when developing and implementing your strategy, you may have to revisit earlier steps. In other words, you may need to go back to make adjustments to previous decisions or assumptions, which are likely also to affect later steps.

The first step or element in a financial strategy is to explore potential goals and objectives. You will need to consider these in order to decide on the most appropriate goals for your company. It’s important to spend time selecting the right goals for your company and not simply emulate those of others. This is a difficult task since you need to evaluate how realistic or reasonable your goals are, but this will be based on predictions and expectations rather than hard data.

Once you have defined your strategic goals, you need to gather all the available data on expenses, revenue streams, and cash flows. This will give you a fuller picture of the company’s profits, losses, and cash flows. For existing companies, you will have historical data previously reported in required financial statements, like the income statement - also known as the profit and loss (P&L) statement - or the statement of cash flows.

You will need to analyze available data rigorously, using multiple techniques to ensure you’re making a well-informed decision. Historical data can serve as the basis for assumptions and projections but is not a guarantee of future behavior. It is equally important to conduct thorough research on competitors and other external factors to make reasonable assumptions about the future.

Discover what FP&A is, how it fits into the larger Finance function and why it is such an essential part of any successful business.

Based on the previous step's results, you’ll have to create a budget and strategy that will allow you to achieve your long-term goals. It’s very important not to miss any income or expenses when you create the budget, so make sure the accountants take a good look at it.

Developing a strategy entails more than just creating the budget. You will need to evaluate projections for different lengths of time, usually for five and ten years in the future. Additionally, you should set up financial controls and periodically assess how well you’re sticking to the budget and whether initial assumptions and projections turn out to be accurate.

Now that you have your strategy, it’s time to start implementing it. Implementing the strategy will require time and effort from everyone involved, so it’s essential to include all employees in the process. You should inform employees regarding the changes to procedures and company goals, as this will make it easier for them to understand and implement your strategy.

Don’t forget to schedule regular reviews to evaluate progress with your financial team, as the strategic approach requires constant monitoring. It’s also helpful to set specific milestones that will help you assess the success of your strategy and its implementation.

As you have seen, strategic finance (or strategic financial management) is a long-term approach. While the tactical approach can increase short-term gains, the strategic approach is concerned with long-term profits and increased market value. Both approaches have advantages and disadvantages that need to be considered before making a choice.

You now know what strategic finance entails and how it differs from tactical financial planning. You also know the main elements or steps involved in developing a financial management strategy, so you can start developing your own. Given the complexity of creating the strategy and monitoring progress, a tool like Layer can help you synchronize your data across multiple locations and formats, as well as automate calculations and the sharing of reports.

Hady has a passion for tech, marketing, and spreadsheets. Besides his Computer Science degree, he has vast experience in developing, launching, and scaling content marketing processes at SaaS startups.

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What is Strategic Financial Planning?

Overview of strategic financial planning.

Strategic financial planning is the process of determining how a business manages itself financially to ensure it achieves its goals and objectives for both the short-term and long-term. Sound planning considers every aspect of a business' operations and the impact each has on the overall financial position of the company.

During an organization's planning cycle there will be models supporting different types of planning processes such as sales planning, headcount planning, revenue and expense planning, and capital planning. These models are designed to collect data at the micro level. Integrated Financial Statements is the macro level model consolidating and analyzing the results of the micro-planning processes. At a corporate level, the results of the planning process should be validated against the strategic objectives of the corporation and provide predictability into the long-range plan.

While many companies rely on ERP systems and spreadsheets for their planning process, leading to errors and difficulty in arriving at consensus plans and budgets, high-performance companies replace the manual spreadsheet process with robust multidimensional modeling capabilities and integrated workflows to minimize error, maximize control, and boost accountability.

MindStream Analytics offers performance management solutions , support, and services that deliver world-leading enterprise planning and consolidation to help companies plan, understand and manage financial and operational performance. Finance can determine if corporate objectives are in synch with operational plans.

Contact us to learn more about eliminating the chaos of collecting, revising and approving budgets and forecasts by implementing solutions that allow strategic and controlled planning processes with the flexibility to adapt as your business changes.

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What is strategic financial planning and management?

Billy is an expert in the FP&A space. Before joining Cube at the seed stage, Billy found success as a tax advisor at companies like Grant Thornton LLP and Gemini.com. He holds a BA and MA in Accounting from William & Mary and splits his time between NYC and New England.

Strategic financial planning and management help businesses stay on track—and know if they’re heading in the right direction. It’s about maximizing profit and shareholder value and reaching long-term financial goals. 

Company leaders tend to be bogged down with operational tasks and often put financial planning on the back burner. 

We get it. It takes time to define objectives, quantify resources, determine how to control assets and liabilities , and much more.  

But a strategic financial management system is necessary for long-term success. 

So how do you make—and manage—your strategic financial plan? Let’s get started.

Billy Russell

FP&A Strategist, Cube Software

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What is strategic planning?

The strategic planning process is how a business determines how to achieve its short-and-long-term financial objectives. The goal of strategic management is to ensure a great ROI (return on investment) for the business and its stakeholders in the future.

The outcome is the strategic plan and the strategy implementation process.

It uses data analysis, creative strategies, and team management to promote profitability, growth, and the long-term success of a business. 

Strategic vs tactical financial management

Strategic financial management focuses on long-term wins while tactical financial managemen t is about the short-term. 

Business owners use tactical financial planning to see more immediate success. While it’s helpful for day-to-day survival, making decisions without looking at the entire picture is risky. 

Using strategic financial management, leaders take actions that support a company’s long-term goals. They might take a loss this year in order to see success two, five, or even ten years down the road. 

Both tactical and strategic decisions have their place in a profitable business.

Strategic planning vs. financial planning 

Strategic planning is the process of creating and implementing business strategies designed to promote the long-term health of an organization. 

It’s a disciplined effort that produces fundamental decisions and actions that shape and guide what an organization is, who it serves, what it does, and why it does it. Effective strategic planning allows an organization to see where it’s going, the actions needed to get there, and how to determine success. 

Financial planning is the task of determining how a business will afford to achieve its strategic goals and objectives. It provides a top-down operational framework to explore various scenarios.

Usually, a company creates a financial plan immediately after determining its vision and objectives. Leaders ask themselves how the business will stack up in the next one, five, or even 10 years—and where they want it to be. 

Financial planning teams outline how the company will meet those goals with current and projected resources. Executives then build out infrastructure and make decisions based on this information. 

While it’s important to create both strategic and financial plans, a business needs both. The financial data provides benchmarks for management to track, and strategy prioritizes long-term success over short-term rewards. 

How to create a strategic financial management and planning process

Financial planning & analysis teams (FP&A) often lead strategic planning initiatives. FP&A enhances the finance department's ability to manage performance by integrating corporate strategy and decision-making. 

From routine activities—like financial close and consolidation, cash flow analysis, and financial reporting—to strategic initiatives—including financial insights on planning, budgeting , financial forecasting, and financial modeling —FP&A covers a lot of ground. 

Let’s see how they approach developing a strategic plan. 

1. Define objectives and goals

Make financial objectives that are specific, measurable, and have a timeframe. Include goals for both the company and its shareholders. 

A company's vision statement or mission statement are good places to begin your strategy formulation. What values comprise the company culture? Leadership should be clear on this before moving forward.

Next, you want to set specific goals and specific time blocks to achieve them. Your financial modeling software can help here.

2. Gather data

Next, you need to gather your company's finances from each internal department and every external source.

You’ll want all the data, including: 

• Accounts receivable and payable
• Expenditures
• Cash conversion cycle

Now's a good time to involve your financial analysts or financial consultants. If your finances are decentralized, that data might live in unsuspecting places, like human resources. This is an opportunity to look at your Accounting process, too.

3. Analyze company data

Are your goals aligned with your current performance? What adjustments have to be made? 

FP&A analysts use predictive planning, driver-based planning , and multi-scenario planning to determine the company’s current standing and potential future. Regardless of the technique, analysts must collaborate with every department when planning—silos are not helpful here.

Luckily, today's financial planning software makes a collaborative analysis process much easier. 

4. Develop and share the plan

Armed with your analysis, it’s time to determine how you’ll meet your financial targets. This will often involve: 

Budgeting: The budget’s primary goal is to determine which financial resources to allocate to each part of the company, from salaries to office supplies. The focus of a budget revolves around cash position, including expected revenues and expenses, to create specific financial goals for the foreseeable future.

Forecasting : A forecast’s undefined nature allows it to be used for both short- and long-term projections and adapt to recent performance data. Executives can make changes in real time to meet the necessary goals, adjusting their operations, such as production, marketing approach, and staffing. 

Scenario analysis: Scenario planning runs various outcomes in a single budget or plan. A common example is drawing various outcomes from an annual operating budget to improve business decisions around resource allocation and adjustment. While this is an analysis, it can be used in the planning stage.

As you identify areas and business units to allocate additional resources to, check in with your mission statement again.

Once a plan is determined, you’ll need to share it with all team leaders so they can build out and manage their team members based on these goals. 

5. Implement & Manage

You now have a clear, data-backed plan to follow. But team leaders must implement the plan and set up financial controls so the company stays on track.

This stage requires consistent financial decisions, identifying issues, and taking corrective actions when needed. 

Without this step, your plan is just a plan—not a way for your company to see success. 

6. Tracking Success

Managing the strategic plan also requires continuously reviewing, planning, and adjusting actions to support long-term objectives .

Financial teams should evaluate specific metrics—like important financial ratios —to see if the plan is being followed, if it’s working, and what might need to change. 

What metrics? Let’s take a look.

Metrics to know for strategic financial planning and management 

Both metrics and KPIs (key performance indicators) help leadership get a pulse on company performance. KPIs specifically track a company’s progress toward achieving strategic initiatives. 

KPIs are metrics that clearly show which goals the business needs to meet in order to keep progressing towards long-term success. The following KPIs will guide your strategic planning and management. 

SaaS magic number 

The SaaS magic number is a metric that quantifies a company’s sales efficiency. It measures the output of a year’s worth of revenue growth for every dollar spent on sales and marketing. 

To calculate the magic number for your SaaS business, you subtract the prior quarter's annual recurring revenue (ARR) from the current quarter's ARR. You then divide it by your total customer acquisition cost (CAC) or the total sales and marketing spend from the previous quarter.

The SaaS magic number helps leaders make decisions on:

Market calibration: Markets change, so marketing will always require adjustments. Knowing your SaaS magic number (and seeing its trend) signals when it's time to recalibrate your marketing.

Sales adjustments : Trends in your magic number can signal that it's time to adjust your sales methods and messaging. You can then focus on and refine those areas.

Cost reduction: A higher SaaS magic number can signal that it's time to shift focus to optimizing your business's finances so that you see more of that revenue as profits.

Net dollar retention

Net dollar retention (NDR) is a SaaS metric that measures how much your monthly or annual recurring revenue is fluctuating. NDR, which can also be referred to as net revenue retention (NRR), looks at expansions, downgrades, and churn rates to indicate business growth.

Expansions are increases in monthly spending from a customer. For instance, customers may upgrade to a more expensive plan, incur more usage charges, or increase their product portfolio through cross-selling. 

Downgrades are reductions in monthly spending. This occurs when a customer moves to a lower tier plan or reduces their usage. 

Churn occurs when a customer cancels their subscription or stops using the service entirely.

NDR offers the most transparent view of growth within your existing base. It can help head off retention issues that can take a long-term toll on revenue. 

Cash runway 

Simply put, your cash runway is the amount of time you can operate at a loss before running out of money. How long will your current funds last without new investments coming in? 

In other words: it's a measurement of your cash flows.

In order to calculate a cash runway, you divide how much money you have by your burn rate. Burn rate is usually measured by the amount of money spent each month, though it can be calculated for different time periods. 

Cash runway shows how profitable your company is—or if it’s overspending. If your cash runway is continuously high, your strategic financial plan may be off track. 

Churn rates

Churn happens whenever a customer stops doing business when a company. Churn rates measure both revenue churn and customer churn. 

Revenue churn is the percentage of revenue lost to cancellations and downgrades and customers. Customer churn is the number of customers lost. 

Customer churn answers the question: What percentage of customers did we lose in the past month?

Revenue churn answers the question: What percentage of revenue did we lose in the last month?

The opposite of the churn rate is the growth rate. The growth rate is the rate at which a company gains new subscribers or new employees. In order for a company to grow, the churn rate of subscribers cannot exceed the growth rate.

Debt-to-Equity ratio

The Debt-to-Equity ratio compares the total liabilities of a company to its shareholder equity, offering insights into how much of the company's operations are financed through debt versus equity.

This is calculated using two key components: Total Liabilities, which include all debts and financial obligations and Shareholder Equity, representing the company's net value (total assets minus liabilities).

A higher Debt-to-Equity Ratio suggests that a company is more heavily financed through debt, which may indicate higher financial risk but also potential for higher returns.

LTV/CAC ratio 

LTV is the lifetime value of a customer and CAC stands for customer acquisition cost. The LTV/CAC ratio compares the value of a new customer over her lifetime relative to the cost of acquiring that customer.

If you spent $10 to acquire a customer and the LTV is $100, then you have a good LTV/CAC ratio. If you spent $1,000 to acquire a customer and the LTV is still $100, then you need to adjust the ROI of your sales and marketing spend. 

The ideal LTV/CAC Ratio for early-stage (high growth) companies is 3:1.

If your LTV/CAC Ratio is above 3:1 (like 6:1), then you're probably missing out on business. You have the funds to expand your sales and marketing team and go after tougher-to-acquire customers.

If your LTV/CAC ratio is below 3:1 (say, it's 2:1 or 1:1), then you're spending too much on sales and marketing. Or, you need to increase the LTV of your existing customers. 

Rule of 40 

The rule of 40 is a principle that the growth rate and profit margin of a company should be greater than 40%. Usually, the Rule of 40 will result in an interchange between growth and profit, since it’s rare to have both be equal or high at the same time. 

When balancing out the equation, it’s more common with high growth revenue to have lower profit margins, or with low growth to have higher profit margins. 

This rule of 40 was developed by venture capitalists to quickly assess the performance of small fast-growing companies. As companies mature, they shift from a focus on growth towards a focus on profit—hopefully keeping steady at the rule of 40. 

Aligning strategic financial planning with organizational goals

Strategic financial planning ensures that financial targets and activities are not just numbers on a spreadsheet, but tools that work in tandem with the organization’s broader objectives. Here's how strategic financial planning aligns with organizational goals:

Understanding Organizational Vision and Goals : The first step in alignment is thoroughly understanding the organization's long-term vision and immediate goals.

Setting Realistic Financial Targets : Strategic financial planning involves setting realistic and achievable financial targets. These targets should be challenging yet attainable and should directly contribute to achieving the broader organizational goals.

Resource Allocation Aligned with Priorities : Allocate financial resources in a way that prioritizes projects and initiatives critical to the organization's success. This ensures that funds are used effectively to support key strategic areas.

Performance Monitoring and Adjustment : Regular monitoring of financial performance against the set goals is essential. This involves adjusting strategies in response to changes in organizational direction or external factors affecting the business.

Communicating Financial Strategies Across the Organization : Transparency and communication are key. Making certain that all stakeholders understand how the financial strategy aligns with the organizational goals fosters a cohesive and focused effort towards achieving these goals.

Integrating ESG criteria into strategic planning

In today's business landscape, the integration of Environmental, Social, and Governance (ESG) criteria into strategic planning is not just a trend but a vital component of sustainable business practices.

ESG factors have become increasingly important in strategic financial planning, as they significantly influence investor decisions, brand reputation, and long-term profitability.

Environmental Considerations : Companies are focusing on reducing their carbon footprint, implementing sustainable resource usage, and adopting eco-friendly practices. This shift not only addresses environmental concerns but also caters to the growing market demand for green products and services.

Social Responsibility : Social criteria involve the company's stance and actions on social issues like labor standards, community engagement, and diversity and inclusion. By prioritizing these aspects, businesses can foster a positive workplace culture and enhance their social license to operate.

Governance Practices : Good governance practices encompass ethical conduct, transparency, and accountability in business operations. Adopting strong governance practices reduces risk and builds trust with stakeholders, including investors, customers, and employees.

Incorporating ESG criteria into strategic planning helps companies align with global sustainability goals and meet the evolving expectations of consumers, investors, and regulatory bodies.

Conclusion: the best way to manage your financial planning process

Strategic management is a perpetual process. FP&As must have a solid grasp of a company's short- and long-term financial needs so they can plan, budget, and forecast to support the strategic plan. 

The tools they’re using for these tasks must improve as the business grows and as organizational complexity increases. 

Cube is the first spreadsheet-native FP&A platform that functions as a single source of truth for your source systems and lets you quickly push and pull data into Excel or Google Sheets. Instead of replacing Excel—which was already working in every other respect—it adds a database. Cube’s database: 

• Read ins and unites data from your source systems
• Organizes, consolidates, and cleans your data 
• Bidirectionally interface with the spreadsheet through a native integration

In other words, Cube automates all the manual, error-prone work on Excel or Sheets so that you can focus on the analysis and forecasting that bring tangible results to your company.

Ready to see how Cube can accelerate your strategic financial planning and management? Book a demo today.

Sources cited: 

• https://www.nibusinessinfo.co.uk/content/difference-between-assets-and-liabilities  
• https://balancedscorecard.org/strategic-planning-basics/  
• https://gocardless.com/en-us/guides/posts/what-is-a-cash-runway/  

Financial Strategy: Full Explanation with Examples

What is a Financial strategy?

A financial strategy refers to a business or individual’s approach to managing and using financial resources to achieve goals. It is an important part of the overall business strategy. It involves planning and decision-making related to investment, budgeting, fundraising, cost management, forecasting future financial scenarios, and managing financial risks.

The main objectives of a financial strategy are typically to increase shareholder value, secure the Company’s financial stability, and ensure the availability of funds for future growth or to deal with unpredicted situations.

Key components of a financial strategy might include:

• Investment strategy : Deciding what to invest in (equipment, personnel, research, development, etc.), when, and how much to invest. It can also refer to investment in financial assets, like stocks or bonds. Investment Strategy: Explained with Types and Examples
• Financing strategy : Determining how to raise the capital needed for investment, whether through equity (like selling company shares), debt (like loans or bonds), or internally generated cash flow. How to make a Financing strategy: Explained with a case study
• Risk management strategy : Identifying financial risks that the Company faces (like exchange rate risk, interest rate risk, or credit risk) and deciding how to mitigate them, typically through financial instruments like derivatives or operational changes. Risk Management Strategy in Finance: Explained with an Example  
• Cash flow management strategy : Managing the Company’s cash flow to ensure there is always enough cash available to meet its immediate needs, like payroll or debt payments. Cash flow management Strategy: Full Explanation  
• Capital structure strategy : Deciding what mix of equity and debt the company should have. This affects the risk and return of the Company and its valuation. Business Capital Structure  
• Dividend policy : Determining how much of the Company’s earnings should be paid out to shareholders as dividends and how much should be retained for reinvestment in the Company. Dividend Policy: Meaning | Types | Factor Affecting | Examples  

Remember, a well-designed financial strategy should align with the Company’s broader business goals and strategies, considering internal factors (like financial health, risk tolerance, and operational needs) and external factors (like market conditions, industry trends, and regulatory environment).

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How to make a financial strategy?

Creating a financial strategy is a multi-step process involving a deep understanding of the Company’s financial situation and business goals. Here are the steps to creating a financial strategy:

• Set clear goals : This is the first and perhaps the most crucial step. It involves identifying what the organization or individual wants to achieve financially. This could range from expanding the business, launching a new product, or improving financial stability. These goals should align with the broader business strategy.
• Understand your current financial situation : Analyze your current financial statements, including income statements, balance sheets, and cash flow statements. Assess your assets, liabilities, revenues, expenses, and cash flows to understand your financial standing.
• Forecast future scenarios : Based on historical data and expected market trends, project your future income, expenses, and cash flows. This can help you anticipate future financial needs and challenges.
• Identify investment needs and sources of capital : Based on your goals and forecasts, determine how much capital you will need and where you will invest it. Then, decide where this capital will come from, whether internal cash flows, debt, equity, or a combination.
• Manage financial risks : Identify the key financial risks you face, such as exchange rate risk, interest rate risk, or credit risk. Determine how you will mitigate these risks through financial instruments or operational changes.
• Create a budget : Based on the above steps, create a detailed budget that outlines your expected income and expenses. This will serve as a guide for your financial decision-making.
• Monitor and revise your strategy : Implement your strategy and monitor your financial performance regularly to ensure that you are on track to meet your goals. Adjust your strategy if your actual performance deviates from your plan or your business environment changes.

Creating a financial strategy is not a one-time task but an ongoing planning, implementation, and review process. It requires financial knowledge, strategic thinking, and careful management. It’s often beneficial to involve financial professionals in this process, either from within your organization or as external consultants.

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Examples of financial strategy

A financial strategy can take various forms depending on a business’s goals, needs, and circumstances. Here are some hypothetical examples:

• Tech Start-up’s Financial Strategy : A tech start-up might set a goal to develop and launch a new product within two years. To do so, it decides to invest heavily in research and development. Given the high upfront costs and uncertain short-term revenue, the Company might choose to fund these investments through venture capital. It plans to prioritize growth over profitability in the short term, expecting that this strategy will maximize its value in the long term. Financial Strategy of a Technology Startup  
• Manufacturing Company’s Financial Strategy : A manufacturing company might set a goal to expand its operations by opening a new factory. It decides to fund this expansion partly through internal cash flows and partly through a bank loan. The Company plans to manage the risk of this new debt by maintaining a conservative cash flow management strategy, ensuring it always has enough cash to make its debt payments.
• Retail Business’s Financial Strategy : A retail business might aim to improve its financial stability by reducing its debt. It chooses to do this by cutting costs, increasing prices, and using excess cash flows to repay its loans early. It might also decide to hedge its interest rate risk by switching from variable-rate to fixed-rate debt.
• Individual’s Financial Strategy : A personal financial strategy might involve an individual setting a goal to retire comfortably at age 60. To achieve this, they might invest a portion of their income in a diversified portfolio of stocks and bonds. They also might decide to purchase life and health insurance to manage the risk of unexpected costs. As they get closer to retirement, they gradually plan to shift their investments from riskier stocks to safer bonds.

These strategies are tailored to the entity’s specific goals, resources, and risk tolerance. The specific tactics used in each strategy (like raising venture capital, taking on debt, hedging risks, or investing in stocks and bonds) can be used in different ways to support different strategies. It’s the combination of these tactics with clear goals that form a coherent financial strategy.

Case study on a financial strategy

Let’s consider a case study of Apple Inc.’s financial strategy:

Apple Inc. is well known for its strong financial strategy. A key aspect of Apple’s financial strategy has been its effective use of capital to generate shareholder value.

Capital Allocation : Apple’s cash flow from operating activities for the twelve months ending Sep ’22 was $24.977 bn. This reserve provides Apple with financial flexibility and security, allowing it to invest in research and development, acquisitions, and other strategic opportunities as they arise.

Shareholder Returns : Apple has consistently returned a significant portion of its profits to shareholders. Since initiating its capital return program in 2012,  Apple has returned over $573 billion to shareholders through dividends and share repurchases . Share repurchases, in particular, have been a key part of Apple’s strategy. By repurchasing its own shares, Apple reduces the number of shares outstanding, which increases earnings per share and can lead to a higher stock price.

Investments and Acquisitions : While Apple is known for its conservative approach to acquisitions, the Company has used its strong balance sheet to make strategic purchases that support its product and service portfolio. This includes the acquisition of companies like LuxVue (for display technologies), Turi (for machine learning), and Anobit (for flash storage), among others.

Debt Financing : Apple has also strategically used debt despite its large cash reserves. The Company started issuing bonds in 2013 to help fund its capital return program, taking advantage of low-interest rates to borrow at a lower cost than repatriating overseas earnings would have incurred (prior to U.S. tax law changes in 2017). As of September 24, 2022, the Company had outstanding fixed-rate notes with varying maturities for an aggregate principal amount of $111.8 billion (collectively the “Notes”), with $11.1 billion payable within 12 months.

Risk Management : Apple manages financial risk through various methods, including using derivatives to hedge against foreign exchange risk and commodity price risk.

This case study illustrates how Apple’s financial strategy supports its business goals and creates shareholder value. The Company’s strategic use of capital — through a combination of capital returns, strategic investments, debt financing, and risk management — has played a key role in its financial success.

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The Importance of Financial Planning for your Businesses 

When you’re starting out and putting in the hours to turn that business dream into a functioning reality, it can be difficult to think of next week – never mind next year. However, it always pays to plan ahead, especially when it comes to the financial future of your business.

Business Financial Planning:

Financial planning for your business helps you to forecast future financial results and decide how best to use your company’s current financial resources in order to realise both your short-term and long-term plans. Because planning involves looking well into the future, it is a highly creative thinking process as well as an analytical one, and you might need to call in the experts to help you juggle both these aspects of your financial roadmap.

How can financial planning help me achieve my company goals?

Having a strong financial plan for your business is probably the most important single thing that you can do to help yourself succeed.  It’s your roadmap, your guideline, a reminder of what your goals are–what you are trying to achieve in the short term and the long term. It is so important that possible investors, bankers, and creditors won’t even set up a meeting with you if you don’t have a financial plan in place. We cannot state this clearly enough – get your business’s financial function set up effectively from the start, and the rest will follow. 

Here are 5 benefits of financial planning for your business:

Financial planning can help you:

• Manage your cash flow properly: Good financial planning allows you to set clear expectations regarding your cash flow so that you know where you can spend and where you need to cut back. This is especially important after the initial startup expenditures.
• Allocate your budget: Financial planning for businesses makes for clever budget allocation and allows all players within your company to understand where and how money will be spent, ensuring less friction. 
• Set realistic goals: If you don’t know how much you have to work with, you can’t set realistic financial goals that work within your budget. Your vision might be lofty, but it pays to be realistic.
• Mitigate your risk: A good financial plan should prepare for unexpected expenses, as well as times of lower income. That way you can ride out the bad times, but keep your doors open.
• Plan a roadmap for the future: Financial planning helps you clarify your company goals and communicate them to your employees and other stakeholders. This makes it easier for the business owners and top management to make more good decisions when planning to scale.

Most people have some idea of what they would like to achieve financially, but they don’t always know how to go about setting realistic goals. Companies that put in the time and effort to work out an effective and strategic financial plan , will be able to allocate their time and resources effectively, allowing them to expand while ensuring good cash flow and healthy accounts.

Does my business need a financial plan?

In short – yes. If money is the lifeblood of your business, then you cannot afford NOT to have a sound financial plan in place. A good financial plan that you refer back to, will allow you to spot anomalies and positive or negative trends in your finances so that you can take the necessary corrective action. This means that you can make your money work for you – spending when and where it’s needed for growth, and cutting back on those outgoings that are becoming a financial black hole. 

We have found that business owners and entrepreneurs are often so involved in the day-to-day running of their businesses, that they don’t have the time and energy to think of long-term financial planning and strategy. This is where we recommend a financial consultant or CFO with the expertise to see what you might miss.  Many entrepreneurs are making use of the services of a virtual CFO instead of hiring full-time, as this allows them access to expertise without the cost of a permanent hire.

What should be included in a business financial plan?

All business financial plans , whether you’re just starting a business or building an expansion plan, should include at least the following:

• Revenue or income – what money is actually coming into your business.
• Your basic fixed operating costs such as rent and utilities.
• General monthly expenses such as marketing etc.
• Costing of your goods or services – take the time to note every cent and every minute that you put into producing your product or service.
• Total profit or loss – the formula for this is income minus cost of goods or services.
• Actual operating income (total profit minus expenses).

After you have these basics down and feel that you have at least an overview of the financial health of your business, it is important to remember that ‘big-picture’ higher-order financial planning and strategizing  are also necessary for the long-term viability of your business. Finance is complex and the finance function is often one of the last frontiers to get fortified by the leadership team. It is also one that becomes increasingly more important as you head towards further expansion, possible fundraises and potential acquisitions. Getting the numbers right is critical. So is developing the right strategy based on analysis, forecasts , and smart financial management . This is where you need the advice of an expert CFO or the assistance of a virtual ‘CFO-as service’ company like Outsourced CFO.

At Outsourced CFO we can assist with getting your financial planning off to a solid start,  in order to help you with building long-term profitability for your business. Reach out to us and let’s get your business ready for growth.

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The Role of Finance in Business Strategy

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A business strategy describes what a business plans to do, while finance funds the activities needed to get there. Companies can have the biggest visions and planned milestones, but they won’t manifest them without strong financial planning.

Just how intertwined are finance and business strategy? The two are inextricably linked. 

Let’s explore everything you need to know about the role of finance in business strategy , how to use finance to inform and achieve strategic goals , and then we’ll share some helpful resources to better equip you to use finance to improve your strategy.

5 Ways the Role of Finance in Business Influences Strategy

Here are five ways that finance helps improve business strategy:

Balances Vision with Realistic Goals

Company goals and visions may reach for the stars, which is great if there’s enough money to get there. Finance has a humbling effect on strategy and goals, as it checks and balances whimsical strategic goals with realism.

A strategic plan is only as viable as a company’s financial power. Finance tells you whether a goal is attainable and if it isn’t, what has to happen to reach it.

Another way finance humbles strategic planning is in removing bias from interpreting something related to the business. 

A great example is a business’s perception that all new business is good. But a financial perspective ignores the bias and optimism and replaces them with cold, hard facts — even if that means acknowledging that one type of potential client might not be beneficial for a business.

Determines Profitability

Profitability is a relative number referring to a business’s ability to earn a return on investment. Similar to profits in that profitability is a business goal, profitability is a business’s ability to sustain itself with its current resources. 

You can use profitability (or a lack thereof) to inform strategic planning . If your business doesn’t have profitability, its current strategy won’t achieve it. Instead, you have to significantly change your strategy. 

To find profitability, a business may alter its strategy to do the following:

• Create goals to find more clients and scale the business
• Invest in new services and offerings to attract higher-paying clients
• Altering a business model to price products and services higher
• Find cheaper supplies

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Budget Tracking

Budgeting helps managers allocate resources to different goals within the strategy . And, tracking budgets and variances help keep strategic goals in line with financial constraints, sometimes sparking the need to revise activities within a strategy. 

For example, if you notice variances between budgets and reality in implementing a strategic goal, you may need to adjust some of the activities in the strategy to find more cost savings. This might look like:

• Hiring higher-paid talent instead of multiple employees
• Expanding one or two locations instead of three
• Offering no bonuses to management one year
• Limiting or broadening the scope of a marketing campaign

Risk Management

Every business has risks, and sound corporate strategies should account for them. Whether it’s a client not paying, a decrease in market prices, or risky terms on a business loan, finance teams use data to assess risk and protect the company’s interests.

Asset Management

Asset management entails increasing a business’s wealth by buying and maintaining investments. These investments may look like real estate property, mutual funds, private equity funds, hedge funds, or exchange-traded funds. Businesses can use these assets to fund their day-to-day activities or grow their presence over time. 

If finance teams present any budget or profitability issues with a company’s current strategy, you could revise the strategy by making more use of a company’s assets. For example, you could:

• Adjust the amount invested each month
• Sell an investment to free up capital for a more important or effective endeavour
• Managing assets internally instead of hiring an asset management company 

Best Practices in Using Finance Principles to Inform Business Strategy

Now that we know the role of finance in business, let’s explore some quick tips and tricks to make sure you’re using finance effectively when planning company strategy:

• Make all strategic goals actionable
• Encourage accountability amongst staff and management
• Conduct variance analysis to learn why strategic expenses sometimes stray from the budget
• Learn how to measure success for your business 
• Create specific targets for financial and strategic goals
• Be adaptable and adjust strategy when financial analysis deems it necessary
• Review your corporate strategy with finance professionals often, once a year
• Make informed decisions about sourcing funding, be it through loans, assets, or capital

Ready to learn more about the role of finance in business strategy and how to impact performance and value creation ?

Discover our online training courses in finance .

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Financial planning: The key to a successful strategic plan

Tags: Healthcare

A strategic plan identifies where you want your healthcare organization to go — and then maps out the steps to get there. Financial planning plays an important role in the strategic plan, allowing your organization to evaluate the impact of a particular initiative and then prioritize strategies. This is essential today when there is limited time and resources to implement initiatives.

For example, if you have a rural health clinic (RHC) and you plan to expand services over the next three years, you need to understand the demand for those services, the RHC reimbursement rate and the resources needed to fund the expanded operations. Will this expansion have an immediate return, allowing for investment in other initiatives that may have a longer ramp-up time?

If a strategic plan is the roadmap for your organization, the financial plan is both the fuel and the guardrails. It outlines not only how you will allocate your resources to achieve the goals but also how those goals will affect your organization’s long-term financial well-being.

A strategic financial plan will serve functions such as these:

• Informing capital and investment decisions with scenario testing
• Informing and prioritizing operational goals
• Aligning operational plans with available resources
• Managing financial vulnerabilities
• Maintaining good credit and access to capital

6 steps for effective strategic financial planning

Strategic financial planning recognizes that the company’s goals and its financial functions do not exist as silos. This process combines traditional strategy formulation with financial planning in a hybrid approach.

It can look a bit different than traditional strategic planning, with time built into the process to conduct scenario testing and cost benefit analysis — before leadership commits to targets.

Here’s what the process can look like, in six steps:

1. Identify the team and stakeholders

Strategic financial plans can’t be crafted in a vacuum. Certain stakeholders may have greater insight into the external environment, including the political, demographic, technological and competitive forces in the market.

Other stakeholders are better positioned for internal introspection, identifying the organization’s strengths and shortcomings. Your finance team can help gather business intelligence and will have its own perspective on the organization’s financial future.

Once you’ve identified your planning team, establish key roles. That includes identifying expectations and determining how decisions will be made. One best practice is to develop a charter for your leadership group and your strategic financial planner. Quantify and allocate shared resources and agree on the planning process to be followed.

2. Develop a common fact base

Identify what you need to know to develop your strategic financial plan. For example, a critical access hospital may start with defining its market and client base. Specifically, determining what geographic area most of its patients come from and the ages of their clients. This information, paired with existing volumes (current state) and projected volumes (future state), inform the needs of a physician/provider complement.

Once you know the staff, equipment, resources and technology to meet market needs (status quo), you can then create a financial forecast to pressure-test strategic initiatives by looking at the resulting changes in operating performance, liquidity and capital metrics.

3. Identify objectives and opportunities

The central part of any strategic plan is identifying what you want to accomplish. Are you looking at revenue goals? Profitability goals? These are objectives.

Develop a list of available opportunities. External benchmarks and internal data can be useful in identifying financial and operational opportunities for improvement. Look for gaps in comparative key performance indicators around revenue, volume, collections, profitability, etc.

Other signals may be less apparent but equally important. For example, difficulty developing, recruiting and/or retaining certain staff and/or technical skills can be a sign that changes should be considered.

4. Determine strategy and prioritize

You have limited resources, so where do you start? As a group, you’ll need to develop a prioritization framework. Use both quantitative and qualitative criteria and recognize that financial impact likely won’t be the only factor when it comes to making decisions.

Your framework might look something like the table below. Other criteria could include complexity or effort required.

5. Quantify financial impact

Your strategic financial plan grounds your plans in reality. Estimate the project costs, understand the potential revenue stream and then estimate and compare the overall cost to benefit. Test every goal for cost-effectiveness. Until you do that, the strategic plan is just a list of opportunities that are not properly vetted.

Consider the impact of any initiative against metrics such as these:

• Profitability (operating/total margin; earnings before interest, depreciation and amortization)
• Liquidity (days cash on hand, cash-to-debt ratio)
• Capital structure (long-term debt-to-capitalization ratio, debt-service coverage ratio)
• Patient satisfaction
• Denials (avoidable write-offs)
• Market share

6. Implement, measure, monitor and improve

As you implement, set a regular cadence for check-ins and leadership updates against the plan. This should be a standing agenda item at the board of directors’ meetings. Cascade plans and the progress on those plans down through the organization. Have the discipline to communicate successes and challenges across leadership, employees and your stakeholder group.

When the business fails to meet certain goals, ask yourself:

• Has the business been managing the plan effectively?
• Has data been measured accurately?
• Was the goal realistic given the organizational resources?

Remember, there are very few flawless implementation plans. Be nimble and adjust regularly.

How Wipfli can help

Strategic financial planning requires a complex knowledge of financial projections, scenario testing, working capital management and more. The process can also be time intensive, putting significant demand on CFOs and financial teams who may already be stretched thin.

Wipfli can provide you with dedicated project assistance, offering data collection and responsive financial analysis to your strategic planning team. This allows you to keep the process moving forward efficiently, while informing your plan with a solid financial foundation.

Contact us to learn more .

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