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Will Kenton is an expert on the economy and investing laws and regulations. He previously held senior editorial roles at Investopedia and Kapitall Wire and holds a MA in Economics from The New School for Social Research and Doctor of Philosophy in English literature from NYU.
Updated July 06, 2024 Reviewed by Reviewed by JeFreda R. BrownDr. JeFreda R. Brown is a financial consultant, Certified Financial Education Instructor, and researcher who has assisted thousands of clients over a more than two-decade career. She is the CEO of Xaris Financial Enterprises and a course facilitator for Cornell University.
Strategic financial management means not only managing a company's finances but managing them with the intention to succeed—that is, to attain the company's long-term goals and objectives and maximize shareholder value over time.
Strategic financial management is about creating profit for the business and ensuring an acceptable return on investment (ROI). Financial management is accomplished through business financial plans, setting up financial controls, and financial decision-making.
Before a company can manage itself strategically, it first needs to define its objectives precisely, identify and quantify its available and potential resources, and devise a specific plan to use its finances and other capital resources toward achieving its goals.
Strategic management also involves understanding and properly controlling, allocating, and obtaining a company's assets and liabilities, including monitoring operational financing items like expenditures, revenues, accounts receivable and payable, cash flow, and profitability.
Strategic financial management encompasses furthermore involves continuous evaluating, planning, and adjusting to keep the company focused and on track toward long-term goals. When a company is managing strategically, it deals with short-term issues on an ad hoc basis in ways that do not derail its long-term vision.
Strategic financial management includes assessing and managing a company's capital structure, the mix of debt and equity finance employed, to ensure a company's long-term solvency.
The term "strategic" refers to financial management practices that are focused on long-term success, as opposed to "tactical" management decisions, which relate to short-term positioning. If a company considers strategic considerations instead of tactical ones, it makes financial decisions based on long-term objectives rather than short-term metrics. To realize those results, a firm sometimes must tolerate losses in the present.
"Strategic" management focuses on long-term success and "tactical" management relates to short-term positioning.
Part of effective strategic financial management thus may involve sacrificing or readjusting short-term goals in order to attain the company's long-term objectives more efficiently. For example, if a company suffered a net loss for the previous year, then it may choose to reduce its asset base through closing facilities or reducing staff, thereby decreasing its operating expenses. Taking such steps may result in restructuring costs or other one-time items that negatively affect the company's finances further in the short term, but which position the company better to succeed in the long term.
These short-term versus long-term tradeoffs often need to be made with various stakeholders in mind. For instance, shareholders of public companies may discipline management for decisions that negatively affect a company's share price in the short term, even though the long-term health of the company becomes more solid by the same decisions.
The average salary of a Strategic Finance Manager in the United States, according to ZipRecruiter. That amounts to about $57 per hour.
A company will apply strategic financial management throughout its organizational operations, which involves designing elements that will maximize the firm's financial resources and use them efficiently. Here a firm needs to be creative, as there is no one-size-fits-all approach to strategic management, and each company will devise elements that reflect its own particular needs and goals. However, some of the more common elements of strategic financial management could include the following.
Just as financial management strategies will vary from company to company, they also can differ according to industry and sector.
Firms that operate in fast-growing industries—like information technology or technical services—would want to choose strategies that cite their goals for growth and specify movement in a positive direction. Their objectives, for example, might include launching a new product or increasing gross revenue within the next 12 months.
On the other hand, companies in slow-growing industries—like sugar manufacturing or coal-power production—could choose objectives that focus on protecting their assets and managing expenses, such as reducing administrative costs by a certain percentage.
Having a long-term focus helps a company maintain its goals, even as short-term rough patches or opportunities come and go. As a result, strategic management helps keep a firm profitable and stable by sticking to its long-run plan. Strategic management not only sets company targets but sets guidelines for achieving those objectives even as challenges appear along the way.
Strategic management can encompass all aspects of a firm's long-term objectives. Financial management often plays a key role in this, which involves cost reduction, risk management, and budgeting.
The goal of strategic financial management is to ensure that long-term goals are properly planned for and ultimately met.
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.
