Strategic financial planning helps companies attain their long-term goals and objectives while maximising shareholder value. Focusing on long-run plans is crucial in keeping a business profitable and stable.
But what exactly is strategic financial planning, and how can it benefit SMEs? Read on to find out.
What is strategic financial planning for businesses?
Financial planning involves looking at one’s business goals and determining the level of investment one is willing and able to make to achieve them. Ultimately, the goal is to create long-term profit for the business and ensure an acceptable return on investment (ROI).
When planning, it is crucial to consider more than just budget alone—one must also take into account other factors impacting the organisation’s overall financial health, including cash flow, typical expenditures, and business assets.
Some decisions included in financial planning are:
● Hiring new employees.
● Expanding into new product lines.
● Purchasing inventory.
Common elements of strategic financial management include:
● Planning.
● Budgeting.
● Managing and assessing risks.
Why do businesses need strategic financial management?
1. Sensible cash flow management
With strategic financial planning, an SME can effectively manage its cash flow to ensure that the business meets its financial obligations. It also allows organisations to seize opportunities promptly.
2. Budget allocation
During the strategic financial planning process, the company’s overall budget is broken down into specific team budgets (e.g., for product development, customer support, and marketing), thus allowing teams to better understand the resources and constraints to operate within. As such, the company can plan campaigns and developmental projects more effectively.
3. Cost control
As financial planning involves assessing past expenses and revenue streams, it allows businesses to identify unnecessary or over-inflated costs. Thus, SMEs can save money and put their resources to better use.
4. Risk management
Financial planning allows businesses to identify risks that may affect their finances (such as foreign exchange and customer concentration risk) and develop strategies to guard against them proactively. This ensures that an SME can handle economic fluctuations and unforeseen circumstances without compromising profitability.
5. Crisis management
An SME that has strategically planned its financial resources is better equipped to handle a crisis due to the presence of a clear structure and direction.
6. Revenue management
Strategic financial management provides businesses with a structured approach to optimising pricing and trade policies to maximise revenue.
7. Growth map
A strategic financial plan allows businesses to assess their current situation and project where they want to be in the future. This may involve, for example, considering the markets the organisation plans to enter, the number of employees to employ and train, or the products to be launched.
8. Profitability analysis
Strategic financial planning provides businesses with a comprehensive process for analysing finances, setting clear objectives, and aligning financial decisions with long-term goals and objectives. Hence, it allows SMEs to analyse the profitability of goods and services while identifying the most lucrative opportunities.
Conclusion
It is imperative that all SMEs plan their finances strategically; this allows them to work towards a long-term goal and adapt to meet future needs. Ultimately, it is a key driver in a business’ overall profitability, growth, and success.
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