What is Strategic Financial Management? 

Financial management refers to the process of managing, controlling, or directing the finances of an organisation. But what is strategic financial management? 

The term “strategic” is defined as anything relating to the identification and achievement of long-term or overall aims. In the context of financial management, we can define strategic financial management as the process of managing an organisation’s financial resources with the long-term goals of the company in mind. 

Where have you heard of strategic financial management?

The ability to properly manage assets, liabilities and cash flows is one of the cornerstones on which successful companies are built, and there are numerous types of financial management approaches available.

Due to the many short-term pressures exerted upon them, many companies unknowingly take a ‘tactical’ approach to financial management, meaning they make financial decisions to meet short-term goals at the expense of the long-term health of the business. 

A great example of this would be companies that use mass layoffs at the end of the year to hit their financial targets. It might result in the achievement of a short-term goal, but the cost of doing so often results in decreased morale of remaining staff, as well as an increase in the rate of voluntary staff turnover, both of which hurt the company in the long term. 

In contrast, companies focused on the long-term health of their business adopt strategic financial management, meaning they continuously plan, revise and re-evaluate their strategies as necessary to meet their goals. 

What do you need to know about strategic financial management?

Every company is different – what works for one organisation may not work for another. As a result, any approach to financial management must be tailored to the unique needs of the specific company looking to implement it. Four of the most common elements of strategic financial management are:

Planning. To adopt a strategic financial management approach, the company must first define its goals. These should be set using the SMART framework (specific, measurable, attainable, realistic and time-bound) and should be directly related to the company’s long-term business aims.

Budgeting. Proper budgeting of a company’s financial resources is critical to the health of the organisation. It allows management to ensure the company remains financially efficient while simultaneously identifying areas where expenses can be reduced, maximising shareholder value.

Consistent implementation. Once the company’s goals and budget have been established, all stakeholders must be consistent in their implementation of the approach. Decision-making should be made with the company’s long-term aims in mind, even if that means considering a trade-off and the sacrifice of short-term goals and expectations.

Review/Evaluation. Measures should be implemented to enable the regular review and evaluation of the current approach. Company financial data should provide insight on whether or not the company is on track to achieve its goals, and stakeholders should have the ability to take corrective action and make changes to the approach if necessary for the long-term success of the company.