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Chessfield: Strategic Financial Planning

Strategic financial planning remains integral for organisations. It helps businesses and employees create a well-defined map to manage their finances effectively, make informed decisions, and achieve short and long-term financial objectives. So let’s have a look at how to best chart and navigate this map!

Key points at a glance

  • Strategic financial planning provides clarity and direction, enabling your business to define financial goals and take action accordingly.
  • By planning ahead, you can use resources efficiently, minimising wastage.
  • Strategic financial management enables the identification of potential risks, empowering the implementation of proactive measures to mitigate them.
  • With a carefully constructed financial plan, your business benefits from more sustainable growth and expansion.

What do we mean when we talk about strategic financial planning?

Like maps and reports help hikers prepare for their hikes and to follow the right trail, strategic financial planning involves formulating a comprehensive plan to help manage the finances and contribute to the long-term financial stability of your business.

It emphasises the significance of financial literacy in making informed decisions, ensuring that companies possess the essential knowledge and skills to manage their finances effectively. These actions entail evaluating your company’s financial situation, budgeting, forecasting expenditures, and managing potential risks.

This approach, closely linked to strategic management, effectively manages available resources and guarantees the alignment of financial goals with the company's long-term vision, so financial struggles won't stand in the way of reaching your business goals.

Unlike tactical management, which concentrates on daily operations and short-term actions to achieve immediate objectives, strategic management takes a broader view, focusing on long-term planning and goal alignment.

When implementing strategic decisions over tactical ones, an organisation will prioritise long-term financial management over short-term gains to achieve sustainable financial success. Since in the end, it’s not just important how quickly you get up to the first viewpoint, what matters is to get up the mountain safely – and that can become difficult if you don’t manage your energy well!

Strategic financial planning: A step-by-step handbook

Every good plan has several well-thought-out steps – and luckily, strategic financial planning is no exception to that rule. With a few set stages, it’s not hard to optimise the available financial resources and efficiently distribute them throughout your business. These include:

  • Business financial plans: Define goals and assess the financial situation to understand the company’s financial problems and potential.
  • Setting up financial controls: Develop a budget and create a financial forecast of future income and expenses to better keep an eye on financial developments.
  • Financial decision-making: Continuously monitor and adjust processes and financial plans to identify and address potential challenges, ensuring the organisation stays on track with its targets.

Keep reading to get a more in-depth understanding of the ins-and-outs of each step when developing a strategic financial plan. 

Step 1: Evaluate your company’s financial situation

The first step to any plan is to ask yourself: Where do we start? So, when trying to plan your company’s financial future, the first step you take should  be a thorough evaluation of your starting point: the business’s current financial situation.

By getting an accurate picture of the current situation, you will not only be able to pinpoint weak spots. It will also be much easier to decide on concrete and effective actions and to track the success of the strategic plan as time goes on.

When evaluating your company's financial position, several factors come into play. Some essential aspects of the financial analysis include the following:

  • Balance sheet: Balance sheet analysis provides valuable insights into your company's ability to meet its long-term financial objectives.
  • Cash flow management:  Understanding cash flow patterns, including revenue and costs, can provide insight into whether your company can meet present financial obligations or fund future growth.
  • Profit margins: Understanding your profitability can provide valuable insights into your organisation’s overall financial health.
  • Tax planning: Minimising tax liability can be crucial to wealth management and safeguarding capital. For instance, consider tax deductions you may receive from capital investments to fund future growth. Who would want to miss out on those?
  • Employee benefits: Retirement planning for employees contributes to overall strategic financial planning within a company. It can provide tax advantages and retain talent.
  • Estate planning:  Safeguard the company’s assets from potential claims or lawsuits.

All in all, get a comprehensive, detailed picture of the company’s financial situation before making any plans. Set realistic goals and choose successful paths to fulfil them, it is essential to first get the gist of the big picture.

Step 2: Set objectives and define your financial goals

Once you’ve amassed a 360º assessment of your organisation’s operations and identified opportunities and room for improvement, the next step in strategic financial planning is setting clear goals and objectives.

Some key questions and points to consider when defining your organisation's financial goals are current or past financial plans, their successes and failures, and financial independence. Additionally, review the resources that are currently available and those that may potentially be available in the future. This way, you can effectively align your goals with the necessary resources needed to accomplish them, dodge past mistakes, and get inspiration from achievements.

Once you establish your financial situation and goals, setting up a financial plan can help allocate existing finances and other capital resources. This way, you make effective plans to maximise their utilisation in line with the organisation's objectives and based on the company’s actual situation.

Step 3: Look into the future with financial forecasting

Once you’ve planned how to avoid past mistakes, you should focus your attention on the opposite direction: Financial forecasting can ensure long-term financial security for your business.

By analysing projected income, planned expenses, and expected financial positions, your organisation can adjust to market changes quickly and achieve its financial objectives more flexibly.

A comprehensive financial forecast considers future revenues, interest rates, stock prices, costs and potential profits that help provide a roadmap of strategic decisions that ultimately lead to the financial success of your organisation. Just like a hiker would consider weather forecasts, time estimates for certain routes and past experiences to validate both when planning a new hike!

Step 4: Develop your budget like a pro

After you’ve defined goals and calculated likely future outcomes, it’s time to start the actual planning act by allocating real numbers to your goals. Just like a good hike, a budget should be ambitious, but realistic. Avoid overestimating your potential, but don’t underestimate your business either.

Using a financial forecast to develop a budget can enable more effective financial decision-making over the long term. It ensures you’re budgeting and saving sufficient capital to cover daily operating expenses, but still invest in growth opportunities without requiring external capital.

In addition, a budget can facilitate the implementation of investment strategies based on your organisation’s risk management preferences. During your financial risk assessment, if you identify potential future losses, you can offset them through better portfolio diversification and asset allocation as well as a potential emergency fund.

These actions will make your organisation more resilient to market fluctuations, ultimately overcoming challenges and meeting long-term financial goals.

Step 5: Implement your strategic financial plan

A key stage of strategic financial planning is the implementation. At some point, it becomes inevitable to start the journey uphill – it’s essential if you want to propel your business forward to meet your financial goals.

This step includes putting all the knowledge and plans you’ve accumulated into action. Starting to use the investment strategies you've identified, effectively managing your resources to maximise returns, cutting costs where necessary, and changing your pricing strategy to boost competitiveness, among other things.

Following your strategic financial plan ensures a safe journey to the top of the mountain and towards financial success.

Step 6: Ensure you’re on the right path with monitoring and adaptation

Once you’re happily hiking away, it can be easy to depend on your careful planning a bit too much. But storms come quickly in the mountains, and trails can look very different than they did on the map, when they’re in front of you. That’s why it’s important to keep an eye on regular markers along the way and to stay flexible enough to adjust to sudden changes in the weather.

What we’re trying to get at with this metaphor is this: Monitoring and adjusting are crucial to financial success. It is always a good idea to regularly track and check key performance indicators and metrics to ensure alignment with your budget and financial objectives, just like regular leadership meetings are vital for providing updates across an organisation.

As markets fluctuate or demand changes, update your strategic financial plan periodically to reflect changing business circumstances. Staying proactive can ensure your plan remains impactful. 

Make your life easier: Software tools for strategic financial planning

Navigating financial planning can feel like you're on a never-ending hike, especially when it comes to expense reporting. Consider this terrain: UK companies typically spend about £23 per employee, per report. If your hiking team consists of 20 to 40 members, you're looking at a monthly outlay of £460 to £920, and an annual expense of £5,520 to £11,040. All this just for manual expense reporting.

These are costs that you can easily eliminate. Since luckily, the new wave of digital accountancy provides us with solutions for this issue.

By utilising software tools to keep track of finances, businesses can save valuable time, streamline workflows, and simplify the execution of financial strategies. Whether you are a business owner or an employee, embracing these technologies can significantly improve expense management processes and contribute to overall efficiency and productivity.

In strategic financial planning, advantages of automated expense management include tracking spending in real-time, capturing receipts and generating expense reports for tax purposes. Plus, employees benefit from a high degree of independence to monitor their spending, while businesses benefit from the flexibility to add limits where needed.

By embracing software tools, your business can efficiently track expenses and say goodbye to those surprise expense receipts at the end of the month!

Improve your strategic financial planning with Pleo

Financial success is the main goal for most UK and Irish businesses. Strategic financial planning provides one way to get there. By simply following the outlined steps, you will not only be able to create a great financial strategy for your company, but also generally make better-informed financial decisions that optimise your business’s long-term financial goals.

To help facilitate strategic financial planning, the right software can be the perfect hiking companion. Pleo’s tool for automated expense management provides 360° visibility of your organisation’s business spending. Businesses can set individual card spending limits and expense review thresholds with the software tool, making bookkeeping faster and boosting compliance with company policy.

Keep an eye on the implementation of your strategic financial plans effortlessly and empower your financial planning with Pleo. Book a demo today!

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