How to use strategic financial planning and strategic financial management for business success

"If you don’t know where you’re going, you’ll end up somewhere else.  
—Yogi Berra

In today's rapidly changing macroeconomic environment and tight, competitive investor markets, businesses that prioritize strategic planning will be better positioned for success.  Without a clear strategic financial plan to get them where they’re going, it’s easy for a business to take a wrong turn, veering away from where they need to be heading. In this article, you’ll learn what strategic financial planning and management is and how it can help you keep your business on track.  

Understanding strategic financial planning and strategic financial management 

While strategic financial planning and strategic financial management are closely related, they are two different processes. So, let’s start with a couple of simple definitions before we dive into the details:

• Strategic financial planning is a continuous process intended to provide a roadmap for businesses to help them achieve their financial goals. 
• Strategic financial management is the process of implementing the strategies identified in a strategic financial plan. 

Strategic financial planning

Strategic financial planning is usually associated with long-term planning (a horizon of three to five years). It is the process of aligning your business goals with financial outcomes and identifies the strategies capable of maximizing market value of the business and value for its  shareholders.

In any organization, finance and strategy are always deeply intertwined, and finance teams play a key strategic role in the business's success. 

During the planning process, finance teams consider every aspect of a business' operations and its impact on the company’s financial health. They map out and analyze how the company will achieve the goals outlined in the financial plan with their current and projected resources enabling business leaders to make informed decisions.

Strategic financial plans detail the steps necessary to drive the business towards its objectives. They also create a foundation for strategic financial management that helps businesses more effectively handle any financial challenges that come up along the way. 

Strategic financial planning requires both micro- and macro-level planning to set the stage for effective strategic financial management from quarter to quarter and to ensure that the short-term goals in different areas of the business are aligned with the company’s overall goals.   

Micro-level planning

Micro-planning is more detail-oriented, involving the everyday aspects of business operations. Here are the different facets of micro-planning efforts in strategic financial planning:

• Sales planning: Finance teams forecast future sales to set realistic targets and adjust strategies based on market trends. This helps them set sales goals that drive revenue growth. 
• Headcount planning: Headcount is one of the biggest cost drivers in any business. It helps predict and model growth more accurately and ensures your hiring decisions pay off. 
• Revenue and expense planning: It helps project future income and expenses to more effectively manage cash flows. With revenue and expense planning you can do more strategic budgeting to help avoid unexpected budget variances.  
• Capital planning: Capital planning allows you to define an optimistic spending curve and budget resources for your organization's long-term plans. 

Macro-level planning 

A macro plan is all about the bigger picture and long-term goals of a business. This approach helps finance teams understand the organization's overall financial health and performance by consolidating different financial statements. 

Macro-level planning also involves analyzing the results of all the various micro-planning processes, to enable informed decision-making and strategic adjustments to achieve long-term objectives.

Timelines for strategic financial planning

The timelines used for strategic financial planning vary from business to business and are usually decided by a company’s leadership. Some people think of a strategic financial plan as a long-term plan of three to five years and consider it more strategic than a one-year plan. 

Ideally, however, each annual plan you create should contribute to your long-term plan. This requires short-term strategies that align with the long-term plan. Thus, both types of plans are strategic in nature.   

Ultimately, it is the responsibility of company leaders to decide on the action steps identified in the timeline agreed upon and to modify the strategies when required. It’s unlikely that you would need to make any major updates or revisions to your overall financial strategy. You just need to regularly monitor the business’ performance to ensure you stay on track with your plan. This monitoring is part of your strategic financial management. 

Strategic financial management vs. tactical financial management

While “strategic” and “tactical” are used often synonymously in finance, there are nuanced differences. "Strategic" financial management is focused on implementing the strategies that will help your business reach its financial objectives while "tactical" financial management refers to leveraging more immediate opportunities in the short term.

Strategic financial management includes organizing a business’ finances in a manner that prepares it for the future. This approach aims to maximize a company's profits and return on investment. In strategic financial management, companies consider their long-term financial goals and implement strategies to achieve them. 

Tactical financial management focuses on a company’s current position in the market and involves developing specific targets for performance. Typically, these targets focus on generating more income for the company or improving the efficiency of the company's operations. Actionable, measurable tasks, including procedures and workflows for different departments, are created to ensure that the company is able to achieve these goals. 

Strategic planning vs. financial planning

Strategic planning and financial planning are integral to any business. The magic happens when these two worlds collide. 

Planning is the process of setting goals and creating steps you can follow to achieve those goals. This entails "thinking before action," determining what you need to do when you will do it, and how you will complete it. 

Strategic planning defines an organization's long-term goals and outlines what needs to be done to achieve these goals. It is fundamentally about making decisions. Financial planning, on the other hand, focuses on allocating resources and managing budgets.

Strategic financial planning marries strategic planning and financial planning to create a roadmap that guides a business towards achieving its short-term and long-term goals. It is a process that encompasses a wide range of planning activities, from budgeting and forecasting to capital allocation and risk management.  

Benefits of strategic financial planning and management

Strategic financial planning and management offer some pretty powerful benefits to businesses:

• Alignment of operational activities and the strategic financial plan: Strategic financial management enables a business to track its performance, ideally, based on real-time data. This in turn, provides insights that make businesses more agile, able to pivot when needed to stay on track toward meeting its goals. 
• Cash flow management: Strategic financial planning enables sensible cash flow management—companies can determine the acceptable levels of expenses and how those expenses will be financed.
• Raising funds: Most SaaS companies require considerable funds when they are in the growth stage. Strategic financial planning is necessary to illustrate to investors the company’s growth prospects. 
• Future roadmap: Financial planning helps companies assess the present situation and plan for the future accordingly. With a well-defined future roadmap in place, businesses are better prepared to achieve the long-term objectives.

The role of budgeting and forecasting in strategic financial planning

Planning, budgeting, and forecasting is a three-pronged process that helps a company map out its approach to meeting its financial goals in the shorter-term, usually over the coming year. Annual planning, strategic budgeting, and financial forecasting all help to inform strategic financial planning as they help to ensure that business activities in the short term align with the company’s overall goals. 

Strategic budgeting

Often referred to as the backbone of financial management, budgeting enables businesses to allocate resources effectively, make informed decisions, and stay on track to achieve their goals. 

Budgeting in itself is a strategic action plan that shows what your expected income and expenses will be, which is used to guide your financial decisions in the day-to-day running of your business.   

Strategic budgeting can be pretty time-consuming as it requires historical data from many different source systems in your business. However, it is a critical piece in ensuring sound and strategic financial management. 

Business budgeting software can eliminate a lot of the heavy lift associated with building a budget that closely aligns with your strategic financial plan. Many integrate with key source systems to significantly streamline data consolidation, freeing up finance teams to spend more time evaluating different scenarios when developing their budgets. 

Forecasting

Financial forecasting gives CFOs and business leaders a glimpse into the future so they can better plan for it. This is critical to helping businesses effectively manage their finances to meet their short term objectives. And, for businesses that have adopted a strategic financial planning approach, meeting those objectives will help them meet their long term goals, too.   

Cash flow forecasting is a particularly important type of forecasting as it helps businesses predict the future cash flow, avoid cash shortages, and earn returns of cash surplus (if any). 

Understanding how to accurately forecast operating cash flows can be challenging, though, especially for a dynamic SaaS business. However, there are cash flow forecasting tools that can make the process easier and more accurate. Using these tools, business leaders can  more effectively allocate resources to achieve strategic goals, and better manage cash flow for business success.  

Components of strategic financial planning and management

While strategic financial planning and management approaches may vary from business to business, most have a few elements in common.

Planning

Planning and setting long-term goals is an essential element of strategic finance. This entails defining the key objectives, having measurable goals, and developing a specific business plan. For example, after understanding your key objectives, you can review your available resources and start developing a plan for investing those resources effectively. For example, if a company's goal is to triple its ARR from $2M to $6M, then that company needs to develop a plan, identify strategies, and allocate resources to achieve that. 

Budgeting

Budgeting aims to help the company with the optimum utilization of resources. In addition to a financial budget, businesses also need to budget for resources, such as time and personnel. It’s important to identify areas that require the most operating costs to create strategies that can ensure resource utilization becomes more efficient. For example, while a financial plan might outline the journey an early-stage startup has to take to reach its first $1M quarter, the budget actually accounts for the expenses necessary to reach that target, such as key hires, tool expenses, cost of external consultants or freelancers, etc.

Assessing risk

Managing and assessing risk is another important element in strategic financial management. Every investment carries some risk. Investments require businesses to take risks since they involve spending a significant amount of time planning and allocating resources. It’s important for an organization to manage and assess its financial exposure and risks involved with each investment as it may lead to financial loss and operational disruptions. 

Establishing ongoing procedures

Strategic financial management involves creating procedural frameworks to assess your progress (against your long-term objectives) and modifying those frameworks as needed. You also require a defined methodology for collecting financial data regarding your business. This makes it easier to identify problems and mitigate potential risks. 

How to create a strategic financial planning process for your business

How you create your strategic financial planning process is important in its successful implementation.

1. Assemble the team and stakeholders

Create a team of individuals with diverse expertise in various areas, such as finance, operations, marketing, and human resources. A diverse team will provide you with greater insights into the organization's internal and external environment. Include stakeholders such as executives, board members, and department heads whose interests may be affected by the plan. 

Assign team members specific roles to help them work with clarity. This may include identifying expectations and establishing how the team will make decisions. 

2. Define objectives and goals

Outline the desired financial outcomes and the long-term aspirations of the organization. You could consider using the SMART approach in setting your goals. 

• Specific: Focused on a clear outline. 
• Measurable: Quantifiable results with clear criteria. 
• Achievable: Realistic and achievable with available resources and time.
• Relevant: Aligned with the mission and strategic priorities.
• Time-Bound: A defined timeframe for completion.

A good starting point is using the company's vision or mission statement to develop the strategy and objectives. The aim is to identify what you are trying to achieve within a specific timeframe.

3. Gather and analyze data 

Next, get all the information from the internal departments and external sources. The financial data may include cash flow, accounts receivable and payable, expenditures, revenue, and earnings. This could be a cross-functional process involving the human resources and accounting departments along with finance teams,

You need this data to compare your current standings against your future performance. It also helps you understand if your goals align with the current performance. Using financial planning and analysis (FP&A) tools can help you automate this process by consolidating data from different sources into a single platform and enabling you to slice and dice the data per your requirements.

4. Create a strategy and share the plan

Based on your analysis, it’s time to create a strategy that aligns with your objectives. This step includes: 

• Determining a baseline budget: Financial resource allocation is important to your strategy. You must determine the budget you require for everything from day-to-day operations to one-off projects or investments. 
• Projecting and forecasting: Based on the recent financial data, you can make short-term and long-term projections to set realistic goals for the future. The team can change its operations, such as production level, marketing strategies, and human resources, align it with the objectives, and maintain financial health. 
• Performing scenario analyses: Scenario analysis involves running various “what-if” scenarios based on a single budget or plan. For example, you may analyze the annual operating budget under different economic conditions, such as recession, growth, stagnation, etc.

As you identify the areas that require additional resources, compare them again with the organization's objectives to ensure that resource allocation is per the strategic plan r. Compare the impact of set plans against important metrics like liquidity, profitability, and capital structure.

Once your plan is ready, share it with all the team leaders. This will help them understand their roles and responsibilities in enabling the organization to  achieve its objectives. It will also help the teams devise individual plans that align with the broader financial strategy. 

5. Implement, evaluate, and refine

Finally, you have a strategic financial plan wherein you have allocated resources, assigned tasks, and initiated tasks based on a defined time and budget. 

During this phase, you’ll use strategic financial management to implement your plan, which includes closely monitoring KPIs, comparing them with the projected outcomes specified in the plan, and making adjustments if needed. Benchmarking your business performance against similar companies in your market is also very useful in ensuring you stay on track toward your goals.

Adopting a continuous improvement mindset during this phase can make it easier to pivot when you need to adjust your strategy based on long-term objectives. Getting feedback from stakeholders and using data-driven insights to refine the financial plan can make your business more responsive to changing circumstances. 

Strategic financial planning and management challenges

It should go without saying that inappropriate management of finances can significantly hamper your ability to meet your company’s long-term business objectives. However, There are some common challenges around strategic financial planning that can throw you off track. Let’s have a look at those now, and how you might avoid or overcome them. 

Reliable data

• Problem: You need the right set of inputs if you want to make better assumptions and set your goals accordingly. Poor data quality may lead to flawed assumptions and poor decision-making. 
• Solution: You need really strong control over your historical data in order to rely on it. Implementing a strict data validation process and performing regular audits for data integrity can make your data more reliable. 

Accuracy of assumptions 

• Problem: Assumptions present challenges as it’s difficult to calibrate them accurately. 
• Solution: Leverage a combination of expertise and business intelligence from your team. Accuracy comes from experience because those experts bring valuable insights and intuition. 

Quantification of qualitative ideas

• Problem: It can be difficult to quantify qualitative factors, such as employee happiness or customer price sensitivity. Given its subjectivity, it can cause inaccuracies in the data and insights.‍
• Solution: Get data from reliable sources like CSAT (customer satisfaction) surveys, feedback forms, and market research. Make sure you use consistent forecasting methods and make sure those methods match your historicals for apples to apples.

How to leverage technology to enhance strategic financial planning and management for your business 

Strategic financial planning and management helps SaaS businesses identify possible strategies to maximize their market value and ensure they stay on track to achieve their financial goals both in the near term and over the next 3-5 years. 

Many companies continue to rely on enterprise resource planning (ERP) systems and spreadsheets for their planning processes, resulting in errors and making it difficult to arrive at consensus plans and budgets. Most high-performance companies have already replaced their manual spreadsheet processes with one or more sophisticated financial management software tools—that have robust features such as multi-dimensional modeling capabilities and integrated workflows—to minimize manual errors, maximize control, and boost accountability.

Drivetrain, an FP&A software solution built for B2B and SaaS businesses, is one of these tools. It helps you engage in all-round strategic financial planning effectively and align all the stakeholders as they work on the same data sets on a single integrated platform.

Check out all the different ways Drivetrain can help you streamline your budgeting, planning, and forecasting for success.