Strategic financial planning is the study of financial affairs with a long term viewpoint considering the organization’s strategic objectives. Financial management nowadays is widely referred to as “strategic financial management” in order to provide it an elevated frame of view. In other words, financial problems are viewed not only as troublesome but also as ennobling by the need for solid strategic management. The term “strategy” in financial management refers to the planning of financial activities by an organization that aims to achieve a certain set of goals. It usually is the result of the collective wisdom of the members of an organization drawing together information regarding the most appropriate ways to achieve their financial objectives.
The term “strategy” is also widely used in the context of financial strategies for corporate value creation. For example, if an organization wishes to increase its ability to produce a profit, one of the most significant strategies would be to enhance its strategic planning process by involving the active involvement of its key stakeholders, namely, management, shareholder, staff and suppliers. Strategic management has evolved as a concept that has been adopted by many organisations and is now undergoing significant changes to adapt to changing times.
Strategic financial strategies are those that consider how and where dividend payments should be vested. Usually, financial strategies pass on all dividend payments in shares to the shareholders in the form of either retained earnings or retained capital. Stocksholders often receive dividend payments in the form of dividends when they buy back their stocks from the company. Alternatively, companies can use a combination of both methods in order to distribute dividend payments to its stockholders.
Strategic financial strategies also include short and long-term investment strategies. The objective of capital budgeting is to create a sustainable capital structure by allowing companies to set aside money for the purpose of making consistent cash flow and future investment profits. These strategies include short-term financing options such as borrowings from the organization (secured loans), borrowing from banks or other approved third parties and the use of retained earnings. Strategic plans are usually made on the basis of projected needs and future expectations of profits and cash flow.
Strategic financial strategies can be developed based on certain models such as the Business Plan, Business Case, Business Strategy, Market Assessment, and Income Statement model. A good financial strategy should include a detailed analysis of the company’s strengths and weaknesses, market trends, competitive environment, customer preferences, competitors, and market segments. One of the most important aspects of a good strategic management plan is a well-written, written annual income statement that details the company’s annual profit and loss statement and includes the statement of cash flows along with balance sheet, working capital, investment funds, and ownership equity. The income statement models allow businesses to prepare for annual financial reports that provide a concise overview and present the key metrics in relation to their performance.
Cash Flow Modeling utilises economic, accounting and cash flow methods to forecast cash inflows and outflows. It enables the company to adjust its operations in response to changing conditions by providing a better understanding of their cash position. When properly applied, cash flow modelling results in a more accurate picture of an organisation’s cash inflows and outflows. Following factors also play a key role in cash flow modelling; these include: return on equity, debt to equity, cost of capital, long term investment, and operating efficiency.