What factors should be considered when setting and reviewing Financial strategies?

Effective business planning will determine what business success looks like, and what needs to be done to achieve it.

Once you've set a plan for your business, look at the numbers to see if your plan will provide the financial results that you want for your business.

Prepare a budget based on your business plan objectives. For example, if you've decided to increase your sales, this could mean extra staff, stock and/or increased marketing. You'll need to prepare a budget that shows not only increased sales, but the increased expenses required to achieve the increase in sales.

A budget is the financial strategy for your business.

As you put together your financial strategy, you'll develop a plan of action for your goals and objectives, which will guide you and your business activities towards improved business performance.

The benefits of having a financial strategy include:

• clarity on the key drivers of your business – find out the key aspects of your plan that need to be achieved in order for you to reach your expected budget results
• tools to measure and monitor performance – your budget can include key performance indicators, such as minimum monthly sales, maximum level of expenses – you can measure these against actual results
• improved profitability – by having a budget and comparing this to actual results, you'll quickly see what's working and what's not – and make changes so your profit can be improved easily
• increased efficiency in the use of resources and assets – monitoring your resources to budget expectations will ensure you get the most efficient use of your business resources. For example, you can look at the time taken from customer order to completion of the job and then payment, and determine if the time-frame can be shortened – this will mean you'll receive payment quicker and have your staff move on to the next job earlier.

Key elements for good financial strategy include:

• the development of realistic targets that align with both your strategic business plan and historical trading activities
• a review of industry trends and other information available that will assist in preparing credible assumptions and targets
• documented assumptions, including sources of information
• budgeted timelines that align to both the strategic business plans and the preparation of financial statements
• regular comparison of budgets against actual financial results
• the scope to amend activities and targets where actual results indicate that budgeted outcomes won't be met.

Budgets and forecasts

Budgets and forecasts are critical tools that can be used to predict the future financial position of your business.

The difference between a budget and a forecast is:

• the budget sets out the financial goals of the business in line with the strategic plan
• a forecast tracks the financial outcomes in line with budget predictions – providing a valuable tool to assess the likelihood of the achievement of the budget.

Once you've set your financial strategy, regularly review the potential future financial position of the business to assess the ability of your business to meet the business strategy.

Strategic financial management means not only managing a company's finances but managing them with the intention to succeed—that is, to attain the company's long-term goals and objectives and maximize shareholder value over time.

• Strategic financial management is about creating profits for the business over the long run.
• It seeks to maximize return on investment for stakeholders.
• This differs from tactical management, which looks to seize near-term opportunities.
• A financial plan is strategic and focuses on long-term gain. 
• Strategic financial planning varies by company, industry, and sector.

Strategic financial management is about creating profit for the business and ensuring an acceptable return on investment (ROI). Financial management is accomplished through business financial plans, setting up financial controls, and financial decision-making.

Before a company can manage itself strategically, it first needs to define its objectives precisely, identify and quantify its available and potential resources, and devise a specific plan to use its finances and other capital resources toward achieving its goals.

Strategic management also involves understanding and properly controlling, allocating, and obtaining a company's assets and liabilities, including monitoring operational financing items like expenditures, revenues, accounts receivable and payable, cash flow, and profitability.

Strategic financial management encompasses furthermore involves continuous evaluating, planning, and adjusting to keep the company focused and on track toward long-term goals. When a company is managing strategically, it deals with short-term issues on an ad hoc basis in ways that do not derail its long-term vision.

Strategic financial management includes assessing and managing a company's capital structure, the mix of debt and equity finance employed, to ensure a company's long-term solvency.

The term "strategic" refers to financial management practices that are focused on long-term success, as opposed to "tactical" management decisions, which relate to short-term positioning. If a company is being strategic instead of tactical, it makes financial decisions based on what it thinks would achieve results ultimately—that is, in the future—which implies that to realize those results, a firm sometimes must tolerate losses in the present.

"Strategic" management focuses on long-term success and "tactical" management relates to short-term positioning.

Part of effective strategic financial management thus may involve sacrificing or readjusting short-term goals in order to attain the company's long-term objectives more efficiently. For example, if a company suffered a net loss for the previous year, then it may choose to reduce its asset base through closing facilities or reducing staff, thereby decreasing its operating expenses. Taking such steps may result in restructuring costs or other one-time items that negatively affect the company's finances further in the short term, but which position the company better to succeed in the long term.

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

A company will apply strategic financial management throughout its organizational operations, which involves designing elements that will maximize the firm's financial resources and use them efficiently. Here a firm needs to be creative, as there is no one-size-fits-all approach to strategic management, and each company will devise elements that reflect its own particular needs and goals. However, some of the more common elements of strategic financial management could include the following.

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

• Help the company function with financial efficiency, and reduce waste.
• Identify areas that incur the most operating costs, or exceed the budgeted cost.
• Ensure sufficient liquidity to cover operating expenses without tapping external resources.
• Uncover areas where a firm may invest earnings to achieve goals more effectively.

• Identify, analyze, and mitigate uncertainty in investment decisions.
• Evaluate the potential for financial exposure; examine capital expenditures (CapEx) and workplace policies.
• Employ risk metrics such as degree of operating leverage calculations, standard deviation, and value-at-risk (VaR) strategies.

• Collect and analyze data.
• Make financial decisions that are consistent.
• Track and analyze variance—that is, differences between budgeted and actual results.
• Identify problems and take appropriate corrective actions.

Just as financial management strategies will vary from company to company, they also can differ according to industry and sector.

Firms that operate in fast-growing industries—like information technology or technical services—would want to choose strategies that cite their goals for growth and specify movement in a positive direction. Their objectives, for example, might include launching a new product or increasing gross revenue within the next 12 months.

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

Having a long-term focus helps a company maintain its goals, even as short-term rough patches or opportunities come and go. As a result, strategic management helps keep a firm profitable and stable by sticking to its long-run plan. Strategic management not only sets company targets but sets guidelines for achieving those objectives even as challenges appear along the way.

Strategic management can encompass all aspects of a firm's long-term objectives. Financial management often plays a key role in this, which involves cost reduction, risk management, and budgeting.

The goal of strategic financial management is to ensure that long-term goals are properly planned for and ultimately met.