Meaning of Strategic Financial Management
The term ‘’strategic financial management ‘’ aims at controlling and looking at all the finances of the company to achieve the desired targets and earn the desired profits for the company. The function of Strategic financial management starts from detecting the number of funds required for the business, then looking for the means or the ways through which these funds are raised at cheaper rates so that the financial requirement of the business are fulfilled. In other words, it can also be termed as applying principles of management to the financial resources of an organisation.
It is one of the most important techniques which is required for any business organisation because unless and until finance of the company is managed properly no function in the organisation can be performed properly. Before applying the strategic financial management technique it is very essential that the objectives of the organisation are precisely and clearly determined so that accordingly finance requirements can be calculated and then required funds are raised through the various possible means.
The three basic elements in the strategic financial management are first of all a proper plan regarding finance is formulated, then after that various controls are set up so that all financial activities go as per the pre-decided plans and then eventually decisions are taken regarding the financial matters. So, it can be concluded that the scope of financial management is very deep in the business and as various important functions.
Importance of Strategic Financial Management
The Importance of Strategic Financial Management can be in the 7 parts
Helps in Detecting the requirements of capital in the business
The first and foremost function of financial management is that it initially estimates the finance needed for the smooth running and functioning of the business. This is one of the primary duty of financial managers. The finance requirements of every business will vary due to the size of the operation, their profit target and various other objectives and mission.
Helps in deciding the composition of the capital structure
Once the capital requirements of the business are calculated, now the next function that needs to completed by the financial manager is deciding what type of capital structure should be there. This basically involves the choices between the short-term and long-term source of funds and also takes into consideration the cost involved in the raising of this finance.
Helps in choosing how the fund should be raised from different available sources
As there is a different source of raising funds are available in the market. This step simply aims at choosing the most appropriate and accurate one. The common types of fundraising methods are raising funds through issuing shares & debentures, simply taking loans from the financial institution or through the issuance of securities like bonds.
Allocating and investing in finance raised
Now after the accurate amount of funds is raised then these funds are invested in various means that are revenue-generating for the business and are also in line with the objectives and goals of the business.
The utilisation of the surplus amount
It is concerned with a decision regarding the profit generated by the business and how it should be utilised and there are basically two options available for this profit utilisation that are either excess profit should be used for distribution as a dividend or for the retained earnings depending on the future plans of the company.
Controlling all cash expenses
This simply means management of the cash so that neither of the expense goes out of the budget. It consists of various expenses where cash payments are to be made like salaries and wages payments, and expenses of water and electricity bills and also the amount required for the purchase of the raw materials etc.
Controlling all finance
It is one of the important function as it is the one which plays a very effective role in the accomplishment of the goals and objectives of the business. It makes sure that whether all the activities are going in accordance with the pre-decided plans and if not accurate control measures are taken.