Strategic financial planning is an internal process that
business owners cannot afford to ignore. Whether a business is just starting
out, has been around for many years, or plans to expand and diversify, a
healthy financial plan is a key element that will aid in its future success.
Without a financial plan, a business is like a ship out at
sea traveling without a compass. Not only does it point in an important
direction, but the process of financial planning will also reveal strengths,
weaknesses, potentials, and threats. At a very competitive age such as this,
businesses ought to prioritize financial planning for them to compete in the
global market.
Enterprise management company, Workday, emphasizes the need
for strategic financial planning to all of its clients, big or small, knowing
that it is key to their success in the future.
What is strategic financial planning and management?
To fully optimize the many advantages of creating a thorough
and well-established financial plan, understanding what is involved in the
process is of utmost importance. Financial planning is the process of creating
a roadmap that will help company owners and executives make wise financial
decisions.
Financial planning covers many important areas, including
assessing the financial health of the business; framing financial policies on
administration, investments, and procurement; sales projections; expenses and
budgets; assets and liabilities; and identifying the long-term methods to be
used in order for the business to meet its goals, to mention a few.
A well-established financial plan will ensure the lifespan
of a business and will serve as fuel in order for the company to go where it
intends to be long-term. Financial experts believe that financial planning is
crucial to creating a successful business.
Financial management, on the other hand, involves the
controlling, monitoring, protecting, and reporting of a business’ financial
resources, which often covers addressing debts, managing investments, applying
for loans, day-to-day bank transactions, and fund generation, among others.
Managers employ effective strategies in order to protect or improve a company’s
financial standing.
Long-Term Benefits of Financial Planning
1. Wise budget allocation
Financial planning empowers business owners and executives
to allocate budgets wisely for specific operational needs. Operating with a
budget prevents wastage of funds, and working within the budget keeps a
business financially healthy.
2. Solid risk management initiatives
The Marquette University in Wisconsin defines risk
management as the “continuing process to identify, analyze, evaluate, and treat
loss exposures and monitor risk control and financial resources to mitigate the
adverse effects of loss.” Being able to confidently navigate risks, such as an
economic crisis, will help a business survive losses and unexpected expenses
brought about by various factors.
3. Clear cut objectives
Starting a strong financial plan begins with an important
question: What does the company hope to accomplish? From there, business
executives can decide on specific goals and assign the corresponding funds for
them to be accomplished.
4. Clear cash flow expectations
Also contained in a financial plan are a business owner’s
expectations when it comes to cash flow or the money coming in and out of the
company. Constantly monitoring the cash flow will keep the business from
folding in the future.
5. Cost-cutting measures are in place
A solid financial plan identifies areas where the company
can cut costs, especially if the expense is unnecessary or redundant. This
component of a financial plan will help business owners greatly in establishing
belt-tightening measures that will reduce expenditures.
What is strategic planning?
Strategic planning is the process of creating strategies
that will help organizations achieve their goals through careful implementation
of plans and thorough evaluation of their impact. Mostly, it’s business leaders
who are engaged in this exercise as it will compel them to come up with major
decisions that will impact the company long-term.
An organization that engages in strategic planning will
potentially enjoy several advantages, including increased operational efficacy,
boosted productivity, sustainability, competitive advantage, leaders who are
strong decision-makers, improved communication, better resource allocation, and
increased profitability, to name a few.
It is vital to be able to differentiate management concepts
to have a better grasp of which ones to employ in order to take an organization
to the next level. Workday promotes the same practice among their clients so
that they remain well-informed.
1. Strategic vs tactical financial management
Strategic financial management is the process involved when
coming up with long-term plans or actions to be undertaken. This is usually
characterized by coming up with vast goals that an organization can target
long-term.
Meanwhile, tactical financial management is a form of planning
that takes place after the preliminary strategic plan has been identified. This
type of plan addresses short-term goals. These are steps to be taken to achieve
the bigger goals.
2. Strategic planning vs. financial planning
Strategic planning is any process that involves the
formulation of strategies to help organizations achieve their goals. Strategic
planning begins with the creation of a vision for the future after an in-depth
analysis of a business environment or opportunity. Often, the creation of goals and objectives
to achieve the vision follows.
To succeed in strategic planning, ask the team to answer the
following questions:
a. What is your situation now?
b. Where do you want to go from here?
c. How do you go from here to where you want to be?
d. What challenges do you foresee?
e. How do you intend to overcome these challenges?
f. What resources do you need to achieve your goals?
Financial planning, on the other hand, is the process of
evaluating an organization’s current financial situation and what needs to be
done in the future. It plays a key role in the creation of a successful
strategic plan as it will help decision-makers identify limitations and
capacities.
If a business wants to expand, for instance, it begs the question
of whether or not it is lucrative enough to be sustainable in the future.
Business leaders need to know the risks involved, how much they are willing to
spend, and how much they want to gain. And these three aspects of doing
business can be answered through financial planning.
How to Develop a Strategic Financial Management and Planning Process
Business owners can always leverage the expertise of finance
and management authorities to help them craft a reliable strategic financial
management plan. In their absence, business leaders can initiate the process by
following a simple step-by-step guide that has been proven to work for multiple
organizations worldwide.
1. Outline objectives and goals
It is vital that organizational leaders know what they want
to accomplish in the long run. Knowing where to go makes planning a lot easier
compared to not having any direction at all. When goals and objectives are set,
planning what to do next will not be burdensome.
2. Gather important data
Data gathering is crucial in planning. Organizational
leaders need to be able to weigh information confidently in order to come up
with concrete plans and make decisive decisions along the way. Without the
right kind of information, decision-makers can be blindsided and they will fail
to see the bigger picture.
In contrast, a leader who is equipped with the right kind of
information will know how to position the organization among its competitors,
which direction to take long term, and can lay down solid financial plans at
the same time. After all, in the world of business, information is gold.
3. Analyze available company data
With the available volume of data accessible to
organizational leaders, they should be able to carefully analyze them and
filter out those that are not relevant and helpful. Without the proper
analysis, regardless of its volume, data will remain untapped.
4. Create and cascade the plan
Armed with vital information, organizational leaders and
their teams can now develop a well-researched plan that will make them stand
out from the rest. Whatever plans are developed should be shared throughout the
organization so that every employee is on board in achieving the major goals
and objectives.
5. Implement and manage plans
After plans have been developed, implementing them is the
one sure way to test their efficacy. For plans to be implemented properly, they
need to be managed. Someone needs to oversee their implementation to guarantee that
they stay on track, and if they don’t, someone is there to troubleshoot or make
quick decisions to get it right back on track.
6. Monitor success
Documenting the success or progress of a plan is important.
This kind of information will be very helpful in the next round of strategic
planning or simply future meetings to check the status of a goal or objective.
Tracking the progress of plans will also reveal which ones need to be improved,
discarded, or changed.
Achieving goals effectively necessitates developing and
studying a planning process that is unique to the needs of an organization.
Perfecting the process will also require addressing its flaws and making
constant improvements and changes. This is how an organization matures and
reaches its goals. This is how it reaches success.
Learn more about the Workday Adaptive Planning program to
help you boost your financial plans. If you’d like to know more about how you can strategically plan your finances and achieve more of your business goals, book a demo at
Workday today!
