Building a Robust Financial Strategy

Strategy. A plan or course of action designed to achieve a specific goal or objective. Providing a roadmap for decision making, guiding the organization’s actions.

The Many Strategies of an Organization

Organizations have many strategies. So many strategies. Because different aspects require focused attention and specific approaches to achieve success. There’s the overall Business Strategy. Then, there’s the Marketing Strategy. And, the Operational Strategy. The Innovation Strategy. The HR Strategy. The Digital Strategy. And, of course, we can’t forget about the Financial Strategy.

Importance of a Financial Strategy

Developing a robust Financial Strategy is crucial, as it sets the direction for the organization’s financial activities and supports the achievement of its overall goals. This comprehensive plan will not only guide the organization’s financial decision making but will also optimize the use of its financial resources, creating value for its stakeholders while properly managing risk.

Steps to Build a Financial Strategy

"But, building a Financial Strategy sounds like a daunting task. Where do we even begin?" Easy.

1. Understand the Business Strategy

This is critical, as the financial strategy must align with the overall business strategy (think hand in glove). To do this, we must have a deep understanding of the organization’s goals. The competitive landscape. The market dynamics. And, the growth opportunities.

2. Conduct a Financial Assessment

We must understand the organization’s current financial position and performance. To do this, we review financial statements, key financial metrics, and trending. We benchmark against competitors, then identify areas of strengths and weaknesses, opportunities for improvement, and potential risks.

3. Set Financial Goals and Priorities

Based on the business strategy and results of the financial assessment, we need to establish clear and measurable financial goals. These may include revenue targets, profit margins, ROI, working capital optimization, or debt reduction. Goals are prioritized by order of importance and their impact on the organization.

4. Develop Actionable Strategies

These are specific strategies or initiatives to achieve our financial goals (above). We must consider both short and long-term strategies. And evaluate feasibility, risks, and resource requirements.

5. Allocate Financial Resources

Determine how the organization’s financial resources will be allocated to support the chosen strategies. We’ll need to budget, plan out capital expenditures, and allocate resources across different departments and projects. All while ensuring that resource allocation aligns with the organization’s priorities.

6. Risk Management

Assess and mitigate any financial risks that could impact financial goal achievement. Market risks. Operational risks. Credit risks. Liquidity risks. And, the dreaded regulatory risks. Then, we implement risk management strategies and controls to minimize potential negative impacts.

7. Monitor and Review

Monitor and review the financial strategy’s progress. Use KPIs or other reporting mechanisms to measure actual financial performance against expected performance. This allows us to evaluate the strategy’s effectiveness, adjusting as needed.

8. Communicate and Collaborate

Please, forget about the four Cs and focus on these two: Communication and Collaboration. Both are essential, not just for the financial strategy’s success, but for success in general. Engage with key stakeholders – pop by, have coffee or lunch, play a round, but stay communicative and collaborate - to ensure proper alignment and support for the strategy.

Iterative Process

And lastly, remember that developing a financial strategy is an iterative process. It requires continuous monitoring, adaptation, and refinement to adjust to changing market conditions and the organization’s needs.