Financial management strategy: Money risk management

Successful business plan always comes with extensive, yet ever evolving financial management strategies. How you manage dispossession, allocation and the subsequent utilization of funds and finances will determine how well your cash flow, as well as workflow is.

Purpose behind having a finance strategy is to ensure the presence of an adequate and regular supply of funds towards fulfilling the present and future requirements of an organization. The more effective financial management is in your company the more you will be able to maximize your revenue generation and utilization. 

Like any other system, in order for your financial management machine to work at its fullest potential, it needs to be at its well-oiled best. There are a number of steps you can take to ensure that your financial strategy is as effective as it can be; but, before we get into that let’s first understand what exactly financial management is.

What Is Strategic Financial Management?

Strategic financial management is the process of managing a company's financial resources to succeed and achieve its long-term financial goals. This includes reaching its objectives and maximizing the company's shareholder value over time. Strategic financial management involves understanding the economic and financial climate to make sound financial decisions about the company's finances, investments, and growth prospects.

What are the objectives of financial management strategy

Businesses may choose to use strategic financial management because it’s intended to drive decision-making that will prioritise business objectives. Utilising this approach helps businesses set clear company targets that factor in planning and preparing for any potential challenges that may arise. Its objective is to lay out solid and achievable steps that will drive businesses toward their main financial targets.

Why are financial management strategies important? 

Effective financial management strategies lie in how they help the business to develop a successful vision for the future. Executing this will give you a set of controlling principles that you can use to optimise your business operations. 

Fundamentally, a financial management strategy is necessary for the development of an overarching business strategy. The objectives you set for your current business income, current cashflow position and annual tax payments, for example, are pivotal to your overall business vision. 

Financial strategies help businesses to check that the goals they are setting are realistic, overcome any unexpected challenges and identify where the money is going. 

Types of financial strategies

1. Dividend strategy

A financial strategy used to determine the percentage of profits that is to be distributed amongst shareholders after retaining a portion of profits as a surplus for the future investment is called the Dividend strategy. It is employed to maximize shareholders’ return while at the same time generating capital necessary for future investment purposes. They aim to do this while ensuring the least cost of capital as well as risk. Dividend strategies are basically used to balance current returns and capital gains.



2. Capital structure planning

Equity capital, retained earnings, preference capital, and debt capital combined are called the capital structure of a company. Capital structure strategies are formulated for a company to balance the advantages and disadvantages or risks associated with equity, preference, and debt capital.



3. Investment planning

Investment planning or capital budgeting is the process of strategizing how to invest capital. After a company acquires capital one of the steps that come after is investing that capital. Capital investment strategies are concerned with this step and the investments they usually deal with are in the context of long-term assets.

Investment planning is the type of strategic financial management that works to establish, expand, diversify and modernize your company. It also includes disinvestment practices like selling or replacing old or outdated long-term assets.



4. Working capital planning

Last, but not least, we have capital planning strategies. Financial management strategies that help manage the need, procurement, allocation, and future of cash in your company are your working capital planning strategies. These strategies are responsible for the management of your working capital. They also help maintain the availability of adequate working capital that is needed to operate the daily and routine activities of the business.

Points to note

Strategic financial management refers to the long-term plans a company makes to grow in the long-term, and ultimately maximize value for the shareholders. Although exact strategies will vary, this typically entails setting precise objectives, and analyzing the company's advantages and resources in order to achieve those goals.