Most modern large enterprises pay attention to the formation of a financial strategy. Such activities are carried out at the level of senior management of companies, however, at the same time they can be sufficiently detailed and involve managers in local business processes. What are the specifics of building financial strategies in enterprises? What are the criteria for the effectiveness of their development?
Definition of financial strategy
What is a financial strategy? This term is understood to mean a plan developed by a business entity, for example, a commercial company, which is associated with the definition of effective ways to generate revenue and reduce company expenses.
The purpose of the financial strategy
The financial strategy is designed to help resolve issues related to the self-determination of the organization as an independent entity of commercial activities, to obtain the necessary funds for development, and to optimize the business model. Working in the appropriate direction, the organization’s management identifies the patterns of economic development of the company, develops methods for adapting the organization to the effects of certain market, social or political factors.
The content of the financial strategy
The financial strategy is most often associated with the optimization of fixed assets of the company, profit distribution the implementation of calculations, tax, investment policies, the search for effective pricing mechanisms. Management activities in these areas can be carried out both in the internal space of the enterprise, and in work on territories outside the corporation - for example, it can be negotiations with investors, large clients, government agencies.
What allows you to achieve the implementation of a financial strategy?
The development of the financial strategy of the enterprise and its successful implementation allow to gain significant advantages in the field of doing business. Among those:
- formation of an effective cash management system for the company;
- identification of key factors affecting the profitability of business models with the subsequent concentration of activities on working with them;
- the formation of a balanced, consistent, rational approach to the formulation of tasks and their solution;
- identification of criteria for the balance of the current business model, as well as potential sources of further growth of the company;
- building transparent and objective instruments of control over the economic efficiency of the enterprise;
- identification of internal and external factors that determine the profitability of the company;
- identification of the key competitive advantages of the organization relative to market players and ensuring their dynamic engagement.
Building a financial strategy is the most important activity in a commercial enterprise. These activities allow a comprehensive analysis of the capabilities of the company, its growth potential and increase competitiveness in a particular business segment.
Elements of a financial strategy
The financial strategy of the enterprise consists of the following key elements:
- planning (which can be classified into various categories - for example, current and future activities);
- concentration of cash resources and the formation of the necessary investment base;
- the formation of reserves that may be needed to maintain the stability of certain business sectors in the event of the negative impact of certain factors;
- interaction with partners - both in the aspect of current communications related to settlements and mutual fulfillment of obligations, and in the direction of the search for new contractors or, for example, investors;
- development of accounting policies of the company;
- standardization of the company at the level of certain business processes;
- implementation of reporting procedures;
- selection of new personnel;
- continuing education for staff members;
- analysis of financial activities;
- control over the implementation of points of the developed strategy.
The work of company managers in these areas can be related both to the search for objective patterns and factors that affect the economic development of the company, and to the discovery of those that have subjective characteristics. That is, those numbers that management received while planning might not be entirely relevant - for example, due to a political factor.
The development of a financial strategy can be carried out at the highest level - but if there is tension in the international arena, the enterprise may have difficulties with the implementation of the intended tasks.
Strategic directions of company development
It will be useful to consider what key strategic directions in the development of the company are highlighted by modern researchers. Among those:
- tax optimization policy;
- study of the possibilities for the formation of the most appropriate prices;
- investment policy.
The first area of activity will be primarily associated with the study of the legal framework at the level of federal, regional or municipal legislation. As for the pricing policy, the determination of its key areas is likely to determine the need for managers to focus on studying external market factors. Investment policy in turn, it will be more based on the study of internal business processes that are built on the enterprise.
The goals of building a financial strategy
Now consider what the goals of a company's financial strategy may be. Most often they are commercial in nature. That is, they will be associated with the desire of enterprise managers to extract as much profit as possible and reduce costs - as we said above. However, the financial strategy of the organization may also reflect the preferences of the owners of the company in solving not only commercial, but also social or political problems.
In the first case, the work of the owners and managers of the enterprise will probably involve the creation of as many high-wage jobs as possible. As for solving political problems, the priorities in the financial strategy of the company can be concentrated in this case in the direction of either the formation of a city-forming enterprise or the economic development of the region. As a result, the owners and managers of the company can rely on certain preferences in the elections, on the implementation of the "lobby" and other activities in the field of municipal, regional policy, and in some cases at the level of national processes.
Varieties of financial strategy
Let us examine in which varieties the financial strategy of an enterprise can be represented. Modern economists subdivide the considered activities into:
- general;
- operational;
- tactical.
We will study them in more detail.
General strategy
As for the first variety of financial strategy, it determines what principles will be based on the development of the enterprise.These can be based on the formation of priorities in the production of a product, the use of a specific technology, emphasized promotion of the company in a particular sales market.
Operational strategy
A financial strategy, classified as operational, will be associated with the definition of tools through which management should lead the enterprise to achieve the goals that are defined at the general level. For example, if the development of markets located in Southeast Asia is chosen as the key principle of the company’s development, then operational tasks may be related to the procurement of equipment that will make production competitive with suppliers from the corresponding region.
The operational financial strategy of the company, as a rule, is associated with the exercise of control over the current expenditure of financial resources available to the company. So, management can solve problems related to: accounting for gross revenues, settlements with suppliers, making profit from the issue of securities, accounting for gross expenses, paying salaries to employees, paying taxes to the budget. If modernization of production, which allowed the company to reach the required level of competitiveness with respect to Asian competitors, has been achieved, the task of management is to determine how relevant innovations are compatible with the current business model of the company, its obligations to contractors and the state.
Tactical aspect of strategy
The tactical part of the financial strategy involves the localization of tasks at the level of specific business processes. Such activities may be associated with the purchase of new funds for individual production lines or, for example, the acquisition of consumables. Financial control over the calculations accompanying the solution of the corresponding tasks can be carried out with high frequency or in conjunction with local operations - for example, related to the transfer of funds to the equipment supplier under the current contract.
Performance criteria for an enterprise financial strategy
Based on what criteria should be the formation of the financial strategy of the company, as well as its subsequent implementation?
Regarding the first stage of managerial activities, we can distinguish the following set of conditions that increase the likelihood of building effective approaches to business development:
- the necessary detailing of production processes (the key factor of competitiveness may be a local business sector, which, it would seem, cannot be decisive in terms of profitability of the enterprise);
- adequate assessment of financial factors (higher expectations for revenue may lead to failure in the implementation of investment plans, understated - to insufficiently dynamic growth of the company, as a result - a decrease in market share);
- due attention to external factors (as we noted above, even the most effective business model may be useless if political events impede its implementation).
Regarding the stage of implementation of the financial strategy, the researchers recommend paying attention to the following criteria for its effectiveness:
- ensuring a stable institutional and personnel basis for the company’s activities at various stages of fulfilling the points of the plans that have been developed (the managers ’idea may turn out to be excellent, but not enough staff qualifications or imperfect internal communications mechanisms may interfere with its implementation);
- providing effective control mechanisms for solving tasks;
- timely analysis of the results achieved (which can help identify any shortcomings of the current strategy or, conversely, its strongest places, which can subsequently be used to increase the competitiveness of the business).
So, we examined how the financial strategy of an enterprise can be built. Owners and managers of the company in the course of its implementation are faced with the need to solve difficult problems, but such activities are worth it because they determine the level of business competitiveness.
At the same time, financial management strategy correlates with another category of management - tactics. We will study this aspect in more detail.
Financial tactics
Financial strategy and financial tactics are phenomena that are closely related. There is a point of view according to which the second element is an integral part of the first, therefore it is not quite correct to consider them in different contexts. We considered a similar scenario above - having examined one of the approaches to the classification of strategies, according to which it is supposed to isolate its tactical variety.
Financial Tactics: Case Studies
There is another thesis according to which the financial strategy and financial tactics of company management can be correlated at the level of methods, but involve solving different problems. For example, the management of an enterprise may decide to change the bank serving the organization's cash register. From the point of view of the financial strategy, no significant tasks are solved in this case. However, management is obviously taking a tactical move, possibly involving the signing of a contract with a more stable bank.
Another example of the corresponding type of decisions: adjustment of the list of powers of the financial director - as an option - in favor of transferring part of those to the general director. Again, in terms of strategy, the solution is not significant. But in terms of tactics, it can be extremely important due to the fact that the general director, having passed specialized training courses, will gain a greater volume of competencies in some economic issues, and therefore will cope with their decision better than the head of a narrower profile.
