The relationship between Strategic and Financial Planning

Planning plays a crucial role in the success of an organization. Strategic planning and financial planning are two types of planning that most organizations use to run their operations. Even though they have a different focus, strategic planning and financial planning are interrelated in various ways.Companies that have an organized financial plan find it easier to stay on track because they can make smart decisions.

Financial planning is defined as the proper management of your finances over time in a manner that can help the organization meets its fundamental business needs. The financial planning process requires businesses to define the resources, equipment as well as activities needed to achieve the set business objectives within the time necessary. Strategic planning, on the other hand, refers to the process of establishing the direction that would be taken by your company, objectives that the business intends to achieve and strategies in place to help meet the set goals. A strategic plan improves the operations of business by ensuring that all the stakeholders put required effort to achieving common objectives and support an organization evaluate the market and accordingly adapt to the changing and more demanding business environment. Both strategic and financial planning entails definition of goals, data collection, and analysis, implementing the plan and monitoring the outcomes.

The purpose of strategic planning to ensure that you provide a road map for the business progression.When a business has a good road map, it stands a high chance of eliminating areas of inefficiencies. This will consequently decrease cost and increase revenue. When this is achieved, the business ends up having more money to use for other activities such as business expansion. A company that has a good flow of cash can plan for a larger budget for their next fiscal year. They also stand a high chance of attracting top investors in the business because investors often look at the financial health of an organization as a sign of business growth and stability.

Financial and strategic planning are often intertwined in business, and they work together cyclically. A change in an organization’s budget often calls for a reevaluation of the current strategies used. Sometimes, budgetary changes are significantly essential, mainly when you need to change your strategic approaches to management. For instance, a company that wants to improve its strategies must first ensure that it has the financial resources to make the new plan effective.

Following the adverse impacts of the 2008 Great Depression, businesses have learned to value the significance of aligning strategically with financial plans. This means that strategic plans must be guided by the number of resources available to dictate the options that the business can take. For instance, planning to capture 20% of the market share in an environment that would require a marketing campaign of around $1.5 million would not be strategically viable if the company only has that money to spend. To be able to meet that objective, the company must look for other viable options or would be forced to review its growth target and maybe reduce it to an affordable rate. It would be difficult for the firm to formulate an excellent strategic plan when they become bankrupt.

In most cases, financial planning is entailed in a business’strategic objectives. For example, if a company generates profits without depending on debts, there is growth. This means that the strategic plans put in place enabled them to improve the assets-liability ratio. As earlier mentioned, a strategic business plan creates a road map for the business allowing it to eliminate inefficiencies by lowering cost and growing revenues. With more resources to use, the company can make more strategic plans than previously done to improve the state of the business.

It is also important to note that strategic planning is the backbone of business management because they enhance the making of strategic decisions to improve the business’ competitiveness. Business’managers depend on financial and strategic planning to run the industry to ensure that it remains competitive in the market. In a company with no viable economic plan finds it difficult to adopt a strategic plan.

In conclusion, strategic planning and financial planning are seen to work hand in hand for the effective management of a business. If the financial plan does not create a structure allows the company to take advantage of opportunities when they arise, a proactive strategic plan of looking for those opportunities would be a waste of time. Strategic planning and financial planning work in line with each other to make the business effective and competitive in the market. A business must understand the available financial plan to be able to make appropriate strategic plans. If strategic plans are created blindly without considering the available finances, the company is deemed to fail to lack of enough of enough funds. Therefore, financial and strategic planning work hand in hand to ensure that the company remains stable.

References

Miller, C. C., & Cardinal, L. B. (2014). Strategic planning and firm performance: A synthesis of more than two decades of research. Academy of management journal, 37(6), 1649-1665.

Pearce, J., & Robinson, R. (2014). Formulation, Implementation, and Control of Competitive Strategy. New York: Irwin McGraw-Hill.

Rhyne, L. C. (2016). The relationship of strategic planning to financial performance.Strategic management journal, 7(5), 423-436.

Thibodeaux, W. (2019).The Relationship between Strategic & Financial Planning. Small Business.Retrieved from Retrieved from http://smallbusiness.chron.com/relationship-between-strategic-financial-planning-21063.html

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