Whether you are an individual or a business, effectively managing your money is the key to achieving your financial goals. This includes staying organised and making well-informed financial decisions. This is where a finance strategy can come in handy, helping you achieve your short and long-term financial goals effectively.
What is finance strategy?
A finance strategy – an amalgamation of financial and strategic planning – is an actionable plan that aligns your financial resources, budgets, and costs with the financial goals and mission of your business. It is a roadmap that can help you innovate and grow – in the face of often unpredictable conditions – by managing trade-off decisions, minimising costs, and setting priorities when it comes to financing different business initiatives.
A finance strategy offers a structured approach to managing the financial resources to achieve the short and long-term goals of the business. Building on key insights from stakeholders, business leaders, and market dynamics, a finance strategy includes focus areas, objectives, initiatives, and KPIs that can aid financial decisions to support business goals and drive sustainable growth.
Who is a finance strategy for?
Although the finance department may be responsible for developing the finance strategy, it is relevant for every department and can serve as a guide to leaders and managers at every level of the organisation. From start-ups to established companies and from non-profits to government entities, a finance strategy empowers every organisation and its stakeholders to make informed decisions, optimise resources, manage risks, and drive sustainability while achieving desired financial goals.
What are some of the key components of a finance strategy?
A well-designed financial strategy considers a host of internal (operational needs, risk tolerance, and financial health) and external (market and industry trends and regulatory environment) and aligns with the broader goals and strategic position of the company. To achieve this, a well-rounded finance strategy may include:
Investment strategy:A roadmap of what, when, and how much to invest in – including equipment, personnel, research and development, or financial assets (bonds or stocks).
Financing strategy:Strategies to raise the necessary capital through equity, debt or internal cash flow.
Risk management strategy:A list of potential financial risks the business may face (credit risk or exchange rate risk) and the strategies and financial instruments that can help mitigate them.
Cash flow management strategy:Guidelines to ensure the company always has enough cash flow to meet its needs like debt repayments and payroll
Capital structure strategy:An outline of the equity and debt mixture the company should have, which can affect the potential risks and valuation of the company.
Dividend policy:A roadmap of what percentage of the company’s earnings you should reinvest in the company and what percentage you should pay out to the shareholders.
How to develop a finance strategy?
As seen above, a finance strategy offers you a structured framework and roadmap for effective financial management and risk mitigation to assess your current financial position, capitalise on opportunities, and design interventions to meet your goals. Here are some simple steps that can help you develop an effective finance strategy:
Clearly define your focus areas
The first step is to understand your shared goals and areas you want to focus on as a company. You can divide these focus areas per department or a particular finance policy you want to implement to attain certain strategic goals. Some examples of focus areas include resource allocation, profitability, and performance efficiency.
Outline the objectives under each focus area
Once you have your focus areas, the next step is to determine your short and long-term goals and set financial objectives accordingly. This can also give you insights into potential risks and mitigation strategies to minimise their impact. Depending on your focus area, examples of financial objectives include increasing revenue or boosting profit margins.
Set measurable KPIs to track the objectives
Setting the right KPIs is crucial to track your objectives and get measurable insights into your financial performance. These can help you optimise your finance strategy and achieve the desired business and financial objectives.
Implement interventions to achieve the set KPI targets
Design and implement projects and interventions that help you progress towards your strategic objectives and financial goals.
Utilise tools and services to visualise and track your performance
Designing a finance strategy is not a one-time task. You must constantly visualise and track your performance, benchmark it against your goals, and tweak your strategy to optimise performance. You can leverage bpm in finance management to optimise your finance strategy and improve your performance efficiency.