For an organization to remain competitive and succeed, it must have a full-bodied calculated stratagem in place. Strategic finance offers forward-thinking, long-term planning for growth and development. Also commonly referred to as strategic financial management, strategic finance may hamper short-term advances, such as abrupt policy changes that may confuse or anger public stakeholders.
A strategic plan is comprised of multiple conclusive targets it aims to accomplish. Internal targets work in tandem with external goals. Internally, a company may which to seek higher levels of discipline or a more efficient line of productivity, whereas externally the company may look to increase stockholder value. Therefore, according to MSG, an organization’s strategy therefore includes long-term planning, organizational development, treasury management, and value management.
Moving from Tactical to Strategic Finance
Simply put, strategic planning is the long-term implementation of shorter tactical moves to increase the business’s productivity, efficiency, and overall operations.
Business practices such as risk management, budgeting, and self-evaluation pervade all areas of an organization, affecting both the short-term tactical goals as well as the overall long-term strategy.
When recognizing what business assets can be leveraged or liquated to fund business acquisitions and deliberate future decisions, management may identify either short-term assets (accounts, inventory) or long-term assets (plans, equipment, property) to facilitate this goal
For example, Apple has been the champion of stock buybacks in recent years. In 2020, Apple, the most valuable public company, repurchased $17.55 billion shares in the second quarter. In fact, Apple has $282.87 billion in buybacks in the last 5 years alone. This is 3.5 times as much as any other company. Apple essentially saw the low market price and deemed it an optimal investment (as part of a tactical maneuver and overall strategy) to increase the earnings overtime for each stakeholder and bolster the total value of the company.
Strategic Planning to Achieve Strategic Finance
To effectively analyze an ever-fluctuating financial and business market, many businesses are employing the help of adaptable and responsive financial tools. These tools are equipped with the capabilities to answer the tricky “what-if” scenarios a business may be faced with both in the short and long run. Additionally, it should also assist in the development of financial models, that can be transferred across departments on review of dynamic variables affecting all areas of the business.
Throughout the last decade, there has been a swift change away from the traditional methods of financial modeling to a new era of online tools that far outperform those of old. Spreadsheets are simply put; difficult to manage, interpret, lack data integrity, and fail to assimilate with other parameters of financial modeling such as strategic planning.
As briefly touched upon, financial modeling grants a valuable insight into the impact of strategic decisions on the company’s cash flow, balance sheet, and shareholder value. Strategic finance models bridge the gaps between finance modeling and financial analysis. This allows flexibility and adaptability when developing financial models, as well as a tool for measuring the impact on financial statements.
Strategic finance modules tend to have a built-in finance model which saves time from designing, developing, and deploying models based on the outdated spreadsheet. Moreover, these modules mean that employees do not need to be trained and retrained to write and create complex logic statements.
Modeling allows flexibility. The financial tool can add and remove complexities to the model when and as needed. It can also provide users to invest more time in the analysis stage along with developing alternative strategies – rather than spending time inputting and validating data.
Strategic financial managers often create a plan for leveraging resources to achieve overreaching objectives, together with identifying potential or available resources to enable business success.
An important role of a financial manager is to ensure the long-term profitability and financial health of the company. This includes the tasks but is not limited to coordinating the balance sheet, income statements, and cash flows to suitably monitor the wellbeing of the company whist enhancing assets.
Similarly, it is vital for managers to monitor the level of risk in the organization’s portfolio. Risk management comprises classifying and enumerating key aspects that increase or decrease a company’s financial exposure. A diverse array of financial instruments such as options, futures, and securities can be used by managers to enhance profitability whilst functioning within an adequate level of risk tolerance.
When push comes to shove, the procurements of a financial strategy are determined by its continued long-term value, stability, effectiveness. For a company to thrive, grow, and overcome tricky economic situations a company must monitor and evaluate the daily operations. Establishing processes that can be modified in real-time to changing factors will provide expert data analysis to keep the business running smoothly.
Strategic finance is a dynamic process, relying on data from both internal and external sources. Expenditures, revenues, and economic conditions all impact how and what decisions a company should take.
Identifying the problems and solutions to new challenges can be tough for a financial manager, but new tools can assist a financial manager to act with confidence and near certainty when determining in which direction to take the company forward.