What is Strategic Financial Management?
Strategic financial management involves not only controlling the finances of a business but also handling them to succeed. That is attaining the aims and objectives of the company and increasing the value of the shareholder over time.
Until an organisation can manage itself strategically, however, it first needs to clearly define its goals, identify and measure its available and potential resources, and formulate a clear strategy for using its finances and other capital resources to achieve its goals.
Understanding Strategic Financial Management
Strategic financial management is about creating profit for the company and ensuring an acceptable investment return (ROI). Financial management is accomplished through financial business plans, financial controls established and financial decision-making.
Financial management itself requires knowing and adequately managing, distributing, and receiving the assets and liabilities of a business, including tracking operating finance items, such as expenditure, sales, receivable and payable accounts, cash flow, and profitability.
Strategic financial management includes all of the above plus constant assessment, preparation, and improvement to keep the business-centred and to move towards long-term goals. When a company is strategically managing, it deals with short-term issues ad hoc in ways that do not derail its long-term vision.
When Strategic Management Is Effective?
As a consequence, part of successful strategic financial management may include sacrificing or re-adjusting short-term objectives to achieve more effectively the long-term goals of the business. For example, suppose a company has incurred a net loss for the previous year. In that case, it may choose to reduce its asset base by closing facilities or cutting staff, thus reducing its operating expenses.
