Financial management strategy

Introduction to financial management Financial Management can be defined as: The management of the finances of a business / organization in order to achieve financial objectives Taking a commercial business as the most common organizational structure, the key objectives of financial management would be to: Create wealth for the business Generate cash, and Provide an adequate return on investment bearing in mind the risks that the business is taking and the resources invested There are three key elements to the process of financial management: (1) Financial Planning Management need to ensure that enough funding is available at the right time to meet the needs of the business. In the short term, funding may be needed to invest in equipment and stocks, pay employees and fund sales made on credit. In the medium and long term, funding may be required for significant additions to the productive capacity of the business or to make acquisitions. (2) Financial Control Financial control is a critically important activity to help the business ensure that the business is meeting its objectives. Financial control addresses questions such as: Are assets being used efficiently? Are the businesses assets secure? Do management act in the best interest of shareholders and in accordance with business rules?

(3) Financial Decision-making The key aspects of financial decision-making relate to investment, financing and dividends: Investments must be financed in some way however there are always financing alternatives that can be considered. For example it is possible to raise finance from selling new shares, borrowing from banks or taking credit from suppliers A key financing decision is whether profits earned by the business should be retained rather than distributed to shareholders via dividends. If dividends are too high, the business may be starved of funding to reinvest in growing revenues and profits further.

What is strategy?
"Strategy is the direction and scope of an organisation over the long-term: which achieves advantage for the organisation through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfil stakeholder expectations". Strategy at Different Levels of a Business Strategies exist at several levels in any organisation - ranging from the overall business (or group of businesses) through to individuals working in it. Corporate Strategy - is concerned with the overall purpose and scope of the business to meet stakeholder expectations. This is a crucial level since it is heavily influenced by investors in the business and acts to guide strategic decision-making throughout the business. Corporate strategy is often stated explicitly in a "mission statement". Business Unit Strategy - is concerned more with how a business competes successfully in a particular market. It concerns strategic decisions about choice of products, meeting needs of customers, gaining advantage over competitors, exploiting or creating new opportunities etc. Operational Strategy - is concerned with how each part of the business is organised to deliver the corporate and business-unit level strategic direction. Operational strategy therefore focuses on issues of resources, processes, people etc. How Strategy is Managed - Strategic Management In its broadest sense, strategic management is about taking "strategic decisions" - decisions that answer the questions above. In practice, a thorough strategic management process has three main components, shown in the figure below:

Strategic Analysis This is all about the analysing the strength of businesses' position and understanding the important external factors that may influence that position. The process of Strategic Analysis can be assisted by a number of tools, including: PEST Analysis - a technique for understanding the "environment" in which a business operates Scenario Planning - a technique that builds various plausible views of possible futures for a business Five Forces Analysis - a technique for identifying the forces which affect the level of competition in an industry Market Segmentation - a technique which seeks to identify similarities and differences between groups of customers or users Directional Policy Matrix - a technique which summarises the competitive strength of a businesses operations in specific markets Competitor Analysis - a wide range of techniques and analysis that seeks to summarise a businesses' overall competitive position Critical Success Factor Analysis - a technique to identify those areas in which a business must outperform the competition in order to succeed SWOT Analysis - a useful summary technique for summarising the key issues arising from an assessment of a businesses "internal" position and "external" environmental influences. Strategic Choice

This process involves understanding the nature of stakeholder expectations (the "ground rules"), identifying strategic options, and then evaluating and selecting strategic options. Strategy Implementation Often the hardest part. When a strategy has been analysed and selected, the task is then to translate it into organisational action.

Financial Management Strategies

To be successful, all organizations both for profit and nonprofit, require sound financial management strategies. Without it, the organization could not survive for very long, remain financially healthy, and expand into its markets. Financial management has several essential components that guide the acquisition, management, allocation, and financing of resources for successful growth. Every event in the organization incurs some costs. For profit-oriented organizations, revenue generation also requires expenses. For nonprofit organizations, dependence on donations or grants raises the level of sound financial management to a high priority. They are stewards of donors similar to the way for profit firms are accountable to stockholders. What is the most effective means of managing the finances of the organization for insuring the greatest control over invested capital toward reaching its mission and goals? What are the required components that promote healthy financial management? This article addresses one major management component that acts as a foundation for other critical parts. Among the most often-missed financial management component is the manager. The finance manager informs the organization of the importance it places on financial management. First, financial management requires expertise. If expertise or experience does not rise to the level for addressing the challenges and issues the organization faces with its finances, proper oversight would be elusive and missing. Conversely, vesting the appropriate level of management oversight to the manager insures successful business management. Business management must be tied directly to financial management. Managerial Experience and Expertise Managerial expertise in financial and accounting matters establishes the level of priority and importance to the firms financial governance. The degree of managerial expertise will reflect the span and scope of necessary oversight. For example, a lower level of expertise will focus narrowly, that is, only on the accounting function. Such a focus will fail to recognize the reach of financial management within the organization. Furthermore, other functional managers will also fail to view its importance and will brush off financial management as having low priority. Consequently, such a low-level focus may disregard the strategic importance of financial management for the entire organization when concentration becomes relegated only to accounting. Additionally, a low level of experience and expertise assigned to financial management oversight will fail to roll out control mechanisms to other functions within the organization. This will result

in other functions not recognizing the value of sound financial policy and practices and thereby resist them to the detriment of the business.