FINANCIAL STRATEGY; Formulation

of Financial Strategy – Module: 1.

Prof: Amarnath.D.G
9343111802.
g.amarnath@mime.ac.in
 Financial Strategy in Accounting;
• Ways an organization finances assets; 'debt' & 'equity.'
• Debt ; two categories: obtaining a loan or selling bonds.
• Seek a loan from financial institutions,
• Dependent on their credit rating and the health of their financial
statements. The benefits of financing assets with a loan include increased
credit rating if payments are paid on time and retaining cash. Drawbacks
include the loan's interest payments and having a contractual
arrangement, which means creditors have legal stance to enforce the
contract. Bonds are similar to a loan, receives money from investors with a
promise to repay sometime in the future.
• Pays interest to the investor , A benefit of selling bonds is the delay in
repayment, which can have a longer term than a loan, sometimes
extending 20 to 30 years
• Equity includes selling stock. receives cash to finance their assets.
• Business big or small needs a financial strategy. Its role is to establish how
the company will use and manage its financial resources to pursue its
objectives. Basically, it outlines the steps you need to take to grow your
business and reach your financial goals.
 Strategic Financial Management
• To develop a consistent financial strategy, it's necessary to have a plan and
define your objectives.
• Encompasses the financial aspects of your business plan, such as revenue
and expenses, investment decisions, capital budgeting and cash
management.
• To precisely define your business goals, assess your current and potential
resources and develop a plan for using those resources effectively.
• Difference between trying to generate revenue and having a clear financial
goal and deadline in mind.
• Involves studying the market, collecting data, forecasting cash flow and
implementing a strategy to meet your objectives.
• Decide who will be in charge of the financial decision-making process.
• Depending on your budget, you can either build a finance department
• Strategic planning, dividend decisions and profitability management,
require expert knowledge.
• Identify optimum investment and financial opportunities, maximize the
returns and mitigate risks.
• Why Have a Financial Strategy? clear plan to optimize your return on
investment and make smart decisions.
• Help you set realistic goals, identify potential pitfalls and develop an
actionable road map
• Increase your profits and reduce debt
• Allocate resources more effectively and avoid unnecessary expenses.
• Key Elements of Financial Management; finance its operations to achieve each
milestone and maximize its profits. Liquidity and working capital decisions,
budgeting, financial planning and financial control .
• To determine how your financial strategy fits into your business plan and what
changes are needed to ensure it stays relevant.
• First, determine where your business is right now. Analyze existing resources
and opportunities as well as the risks your company is facing. Conduct a cash-
flow analysis. Next, set key financial targets for the next two, three or five
years.
• Involved in the financial decision-making process, including your marketing
department, sales teams, describe the current situation and provide detailed
reports.
• Develop a financial strategy that aligns with your goals. Make sure that
enough funding is available to meet the needs of your company. Review the
financial plan every few months and make adjustments if necessary.
 FINANCIAL STRATEGY FRAMEWORK;
• 1. Opportunity. 2. Sources And Deal Structure (Department, Equity And
Others). 3. Financial Strategy; Degrees Of Strategic Freedom; (Time To
Ooc, Time To Close, Future Alternatives, Risk, Reward, Personal Concerns).
4. Business Strategy (Marketing Operations, Finance, Value Creation). 5.
Financial Requirements; (Burn Rate, Operating Needs, Working Capital,
Asset Requirements And Sales).
• Financial strategy framework; 1. Nonprofit organizations have varying
financial motives for incorporating social enterprises , reliance on donors,
reduce program deficits and employ resources more efficiently., set
modest financial objectives.
• Financial Self-Sufficiency ; increasing nonprofit organizations' ability to
generate sufficient income to cover all or a substantial portion of their
costs or fund several social programs without continued reliance on donor
funding. Opt for external subsidiaries
• Cost Savings and Resource Maximization
• Methods of Income Generation; need capital to grow. best make good use
of borrowed capital and their own risk capital.
• Nonprofit manager willing to borrow, the lack of collateral, credit history,
or financial competence are other factors that prohibit access.
 FRAMEWORK FOR DEVELOPING FINANCIAL STRATEGY;
• Focused on maximizing the value of the firm will recognize the importance
of reviewing and adjusting their financial strategy just as rigorously and
frequently as their operating strategy.
• Can be lifted by analysis that is well grounded in finance theory but made
intuitive to decision makers.
• Communicating both internally within the company and externally to
investors can help refine a financial strategy and possibly avoid costly
missteps.
• To enhance shareholder value, it provides a number of levers that can be
fine-tuned on a regular basis.
• Financial strategy-the set of policies that determines capitalization, the
sourcing of funds, and distributions to shareholders-has a significant
impact on a company's ability to invest for value creation, provides
important signals to the investment community, and can capture for
shareholders the value created in the company.
• Key components of operations are frequently scrutinized and updated,
• Step 1: Establish an appropriate capital structure.
• Step 2: Understand whether is undervalued or overvalued in the market.
For share repurchases to be a viable option,
• Step 3: Develop a financial strategy.

• Different Types of Financial Planning Models and Strategies; Types of

Financial Planning Models and Strategies: ... Cash Flow Planning: ...
Investment Planning: ...Insurance Planning: ...Retirement Planning: ...Tax
Planning: ...Real Estate Planning: ...
 TYPES OF FINANCIAL PLANNING.
• Define your Long Term and Short Term Financial Goals: 1. Cash Flow
Planning: 2. Investment Planning: 3. Insurance Planning: 4. Retirement
Planning: 5. Tax Planning: 6. Real Estate Planning:

• Balance your business and personal goals; Explore different financing

alternatives; Control cost; Manage liquidity; Manage your taxes; Manage
risk; Build a safety net; Plan for business succession;
 STAKE HOLDERS MANAGEMENT;
• Key stakeholders can make or break the success of a project. Executives,
project team, employees, customer, contractors, suppliers, government,
investors, civilians, society, peers, resource managers, politics about the
project, Stakeholders have conflicting interest, identify and meet the
requirements of different stakeholders. i. assess the situation, ii. Identify
goals, iii. Define the problem, iv. Culture of stakeholders, v. manage
stakeholders.
• RELATIONSHIP BUILDING TIPS; i. analyze stakeholders, ii. Assess influence;
measure the degree to which stakeholders can influence the project, the
more influential a stakeholder is, the more a project manager will need
their support. Iii. Understand their expectations, iv. Define success, v. keep
stakeholders involved, vi. Keep stakeholders informed.
• TOOLS TO HELP STAKEHOLDER MANAGEMENT; i. identify who are the
stakeholders, ii. Power and the intentions towards the project, iii.
Relationship s amongst the stakeholders iv. Analyse the stakeholders.
• Stakeholder analysis in the context of financial strategy and development;
identifying public concerns and values and developing a broad consensus
on planned initiatives. It is also about utilizing the vast amount of
information and knowledge that stakeholders hold to find workable,
efficient and sustainable solutions .
• (1) Stakeholder identification, (2) Stakeholders’ importance and influence
(3) Stakeholder interests and (4) Stakeholder strategy plan.
• Advantages 1.Provides an understanding how to associate with important
and with sensitive stakeholders.2.Hence, conflicts can be avoided.3.Gives
a planner a first overview about important stakeholder groups and
possible problems one has to deal with.4.Facilitates planning.
• Disadvantages.1.Is not representative and hence can lead to
misinterpretations.2.Be aware not only to consider the stakeholders with a
high degree of influence.3.Is not meant to be a way of excluding
stakeholders with less importance and influence.4.In fact, it just gives one
an image how to cope with different stakeholders.5.If only done with the
matrix, important information which can be valuable later on can be
forgotten.
• When planning a strategy on which stakeholders to involve into the
decision making process and how to communicate, cooperate and
associate with them, it is worthwhile to find out more about the
stakeholder characteristics.

• Influence and power of a stakeholder can affect the success or failure of

an initiative.
• View of each stakeholder’s relative importance and influence
 Survival of financial strategies,
• Strategy: Get Out of Debt; Live “Within” Your Means; make a budget that
you can afford. Pay off your debts—start with the ones that carry the
highest interest rates.
• 1. Have a solid plan ; 2. Explore access to funding ; 3. Build a winning
team; 4. Listen to what your customers want ; 5. Think globally;
• The role of finance in strategic planning and decision making process; goal
helps.
• Strategy to achieve success depends on; i. Firm’s alignment with the
external environment, ii. A realistic internal view of competency, iii.
Sustainable competitive advantages, iv. Careful implementation and
monitoring.
• Strategy helps to know; who we are, where are they at present, where
they want to be, how to get there. Know what is to be done, how, when
and where. Have an edge over the competitors. The optimal utilization of
the resources including finance.
• 1. VISION; values, purpose, future direction, core ideologies, vision for the
future.
• 2. MISSION STATEMENT; target customers, markets, products, services, area,
technology, commitment to survival, growth, profitability, profitability,
philosophy, self-concept, desired public image.
• 3. ANALYSIS; business trends, opportunities, resources, competencies.
PORTER’S MODEL; for external analysis; industry competition, threat of
substitute products, potential for new entrants, bargaining power of suppliers
and the customers. For internal analysis; Industry evolution model; for
technology, quality, performance features, cost reduction, innovation tactics to
maintain and increase market share, elimination of marginal products,
improvement of value chain activities, secondary activities. SWOT analysis.
• 4. STRATEGY FORMULATION; long term strategy, PORTER’S generic strategies
model: i. low cost leadership; buyers are price sensitive, few opportunities for
differentiation, ii. Differentitation: buyers’ needs and preferences are diverse
and there are opportunities for product differentiaon, iii. Best cost provider;
buyers expect superior value at a lower price, iv. Focused low cost, for specific
tastes and needs, v. focused differentiation; unique preferences and needs.
• 5. STRATEGY IMPLEMENTATION AND MANAGEMENT; Balance score card (BSC)
to align strategy with expected performance, financial goals for employees,
functional areas, business units. Translate strategy in to objectives, operational
actions, financial goals, financial factors, employee learning, growth, customer
satisfaction, internal business process.
 THE ROLE OF FINANCE;
• Monitor specific, measurable financial strategic goals on a coordinated, integrated
basis, to operate efficiently and effectively. 1. FREE CASH FLOW; measures financial
soundness, how efficiently financial resources are utilized to generate additional cash
for future investments, and working capital.
• 2. ECONOMIC VALUE ADDED; risk adjustments, make effective, timely decisions to
expand businesses, implement corrective actions , economic value added goals to
effectively assess business value contributions and improve the resource allocation
process.
• 3. ASSET MANAGEMENT; efficient management of current assets/liabilities, working
capital management.
• 4. FINANCIAL DECISIONS AND CAPITAL STRUCTURE; debt or leverage ratio to minimize
the cost of capital, optimal capital structure determines reserve borrowing capacity, risk
of potential financial distress.
• 5. PROFITABILITY RATIOS; measures operational efficiency, indicate inefficient areas for
corrective actions measure profit relationships with sales, assets, net worth.
• 6. GROWTH INDICES; evaluate sales and market share growth, determine the
acceptable trade off of growth to cash flows, profit margins, returns on investment.
• 7. RISK ASSESSMENT AND MANAGEMENT; address uncertainties by identifying,
measuring, controlling risks in corporate governance, regulatory compliance, chances of
occurrence, economic impact, Mitigate the causes, effect of those risks. Predict and
anticipate future problems.
• 8. TAX OPTIMIZATION; manage the level of tax liability, tax planning through mergers,
units in SEZ, export, returns after tax.
• WAYS TO PROTECT WEALTH; 1. Balance business and personal goals. Set short
and long term goals. 2. Explore different financing alternatives. Optimization
of debt and equity based on size and the nature of the company, economic
conditions, flexibility approaches. 3. Control cost but do not compromise
quality. 4. Manage liquidity. 5. Manage taxes. 6. Manage risk. Both internal
and external. 7. Build a safety net. 8. Plan business succession.
• TYPES OF STRATEGIES; 1. Research and development strategy for innovation.
2. Operations strategy; to reduce the cost, good administration, plant layout.
3. Financial strategy. 4. Marketing strategy. 5. Human resources strategy, 6.
Constraints and strategic choice.
• STRATEGY SELECTION CRITERIA; i. responsive to the external environment, ii.
Off sustainable competitive advantage, iii. Consistent with order strategies, iv.
Provide adequate flexibility v. conform to the mission and long term
objectives, vi. Organizationally flexible.
• STRATEGY IMPLEMENTION; a process of translation of strategies and policies
into action through programs, budgets, procedures. Implemented through the
right organization structure and appropriate management practices, a
progress towards, objective according to plan rigorous process of control voer
important activities. Motivate to implement a new strategy , do the job the
way it to be done, use modern techniques to inspire for performance.
• STRATEGIC PLANS TO SURVIVE; i. have a solid plan, ii. Explore access of
funding, iii. Build a winning team, iv. Listen to what the customers want, v.
think globally, vi. Acknowledge the good and the bad, vii. Stop holding to
things for sentimental value, viii. Link wages to productivity, ix. Share
salary information, x. share company performance, xi. Appoint people on
merit, xii. Pay on performance, xiii. Have a long term policy, xiv, use the
current situation for changes, xv. Retrench non performing people, xvi.
Reassign leadership team, observe the consequences from the
stakeholders.
• The Strategic-Planning and Decision-Making Process. 1. Vision Statement;
2. Mission Statement; 3. Analysis; 4. Strategy Formulation; [VIMOSA]
• The Role of Finance; Financial metrics have long been the standard for
assessing a firm’s performance. 1. Free Cash Flow; This is a measure of the
firm’s financial soundness and shows how efficiently its financial resources
are being utilized to generate additional cash for future investments.
• 2. Economic Value-Added; This is the bottom-line contribution on a risk-
adjusted basis and helps management to make effective, timely decisions
to expand businesses
• 3. Asset Management; This calls for the efficient management of current
assets (cash, receivables, inventory) and current liabilities (payables,
accruals)
• 4. Financing Decisions and Capital Structure; Here, financing is limited to
the optimal capital structure (debt ratio or leverage),
• 5. Profitability Ratios;
• 6. Growth Indices; Growth indices evaluate sales and market share growth
• 7. Risk Assessment and Management;
• 8. Tax Optimization;
• Ways to boost and protect wealth; Balance your business and personal
goals , Explore different financing alternatives , Control cost, Manage
liquidity, Manage your taxes, Manage risk, Build a safety net, Plan for
business succession.
• Different Types of Strategy; Operations Strategy: Research and
development strategy. Financial strategy. Marketing Strategy. Human
Resources strategy.
• Strategy selection criteria 1) They are responsive to the external
environment. 2) The offer a sustainable competitive advantage.3) They are
consistent with order strategies in the organization.4) They provide
adequate flexibility for the business and the organization. 5) They conform
to the organization’s mission and long term objectives. 6) They are
organizationally flexible.
• Strategy Implementation: Strategy implementation is the process of
translation of strategies and policies into action through the development of
programs, budgets and procedures
• Unless the corporation is appropriately organized, programs are adequately
staffed and activities are properly directed these operational plans fail to
deliver the goods.
• People should be motivated to implement a new strategy in desired ways.
• Strategy implementation; Top Management. The Project Team. Peers.
Resource Managers. Internal Customers. Internal customers are individuals
within the organization who are customers for projects that meet the needs of
internal demands. External customer. External customers are the customers
when projects could be marketed to outside customers. Government.
Contractors, subcontractors, and suppliers.
• Assess: Politics of Projects. the environment. Identify goals. Define the
problem. Culture of Stakeholders. Analyze stakeholders: Conduct a
stakeholder analysis, or an assessment of a project’s key participants, and how
the project will affect their problems and needs.
• Assess influence: Measure the degree to which stakeholders can influence the
project. The more influential a stakeholder is, the more a project manager will
need their support. Understand their expectations: Nail down stakeholders’
specific expectations. Ask for clarification when needed to be sure they are
completely understood.
• Define “success”: Every stakeholder may have a different idea of what project
success looks like. Keep stakeholders involved: Don’t just report to
stakeholders. Ask for their input. Keep stakeholders informed: Send regular
status updates. Daily may be too much; monthly is not enough.
• How to Relate to Different Types of Stakeholders. By conducting a stakeholder
analysis, project managers can gather enough information on which to build
strong relationships – regardless of the differences between them.
• Supportive Stakeholders are Essential to Project Success. Achieving a project’s
objectives takes a focused, well-organized project manager who can engage
with a committed team and gain the support of all stakeholders.
• Tools to Help Stakeholder Management. identify who your stakeholders,
determine what power they have and what their intentions toward your
project are.
• 1. What is Stakeholder Analysis ; A stakeholder is any person, group or
institution with an interest in the project. A stakeholder may not necessarily
be involved/included in the decision making process. Stakeholders should be
identified in terms of their roles not individual names. Stakeholder Analysis is
the identification of a project’s key stakeholders, an assessment of their
interests and the ways in which these interests affect the project and its
viability. 1. Have a solid plan . 2. Explore access to funding . 3. Build a winning
team. 4. Listen to what your customers want . 5. Think globally.
 How to save our organization.
• 1. This is a time to make very tough decision and for hard work.
• 2. Stop holding to things for sentimental value.
• 3. Link wages to productivity as it is the only way to sustain higher wages.
• 4. Share salary information with everyone to increase accountability and
trust.
• 5. Share company performance information in both good and bad times.
• 6. All senior executives must be appointed on merit.
• 7. Implement a 60 percent performance based pay and 40 percent
guaranteed pay system.
• 8. Craft survival strategies that go beyond one year.
• 9. Use the current situation to initiate changes that will be tough to sell in
a better economic environment.
• 10. Cut salaries by 40 percent across the board
• 11. Reduce the number of managers. Most organisations are overstaffed
at the top.
• 12. Part ways with people who are not performing:
• 13. Develop targeted retention schemes for those performing.
• 14. Don’t increase salaries on the basis that “revenue may increase.” It
might not.
• 15. Ask employee if they want to have a job or more money.
• 16. Have a strong voice in the National Employment Council (NEC)
• 17. Reassign your leadership team: Do not change a winning team but you
have every reason to change a losing team: If you are not winning look at
the team.
• 18. Use contract labour.
• 19. If you must retrench do it respectfully
• 20. There must be consequences to what people do.
• Developing an action plan can help change makers turn their visions into
reality, and increase efficiency and accountability within an organization.
 Action Plan.
• It helps us turn our dreams into a reality. An action plan is a way to make
sure your organization's vision is made concrete. It describes the way your
group will use its strategies to meet its objectives. An action plan consists
of a number of action steps or changes to be brought about.
• WHAT ARE THE CRITERIA FOR A GOOD ACTION PLAN? action plan:
Complete? Clear? who will do what by when? Current? reflect the current
work? Does it anticipate newly emerging opportunities and barriers?
• WHY SHOULD YOU DEVELOP AN ACTION PLAN? "People don't plan to fail.
Instead they fail to plan. "take all of the steps necessary to ensure success,
including developing an action plan. To lend credibility to your
organization. is well ordered and dedicated to getting things done. don't
overlook any of the details , For efficiency: to save time, energy, and
resources in the long run. For accountability: To increase the chances that
people will do what needs to be done.
• WHEN SHOULD YOU CREATE AN ACTION PLAN? be developed within the
first six months to one year of the start of an organization. after you have
determined the vision, mission, objectives, and strategies of your group.
give you a blueprint for running your organization or initiative, Display it
prominently. revise your action plan to fit the changing needs
• HOW TO WRITE AN ACTION PLAN. DETERMINE WHAT PEOPLE AND
SECTORS OF THE COMMUNITY SHOULD BE CHANGED AND INVOLVED IN
FINDING SOLUTIONS.
• VMOSA (Vision, Mission, Objectives, Strategies, Action Plans) model, be
inclusive.
• Convene a planning group in your community to design your action plan.
• Develop an action plan composed of action steps that address all
proposed changes. The plan should be complete, clear, and current.
• The action steps will help you determine the specific actions you will take
to help make your vision a reality.
• Review your completed action plan carefully to check for completeness.
• Action plan taken as a whole will help you complete your mission;
• Follow through.
• Getting members to do what they said they would; Basic Overview of
Various Strategic Planning Models. Choose the Best Model
• Prefer a rather top-down and even autocratic way of planning and making
decisions. prefer more inclusive and consensus-based planning. prefer a
very problem-centered approach. prefer a more strength-based approach,
for example, to use Appreciative Inquiry.
• Model One - Conventional Strategic Planning. It is ideal for organizations that
have sufficient resources to pursue very ambitious visions and goals, have
external environments that are relatively stable, and do not have a large
number of current issues to address.
• 1. Develop or update the mission and optionally, vision and/or values
statements. 2. Take a wide look around the outside and a good look inside the
organization, and perhaps update the statements as a result. 3. As a result of
this examination, select the multi-year strategies and/or goals to achieve the
vision. 4. Then develop action plans that specify who is going to do what and
by when to achieve each goal. 5. Identify associated plans, for example,
staffing, facilities, marketing and financial plans. 6. Organize items 1-3 into a
Strategic Plan and items 4-6 into a separate one-year Operational Plan.
• Model Two - Issues-Based Strategic Planning. organizations that have very
limited resources, several current and major issues to address, little success
with achieving ambitious goals, and/or very little buy-in to strategic planning.
1. Identify 5-7 of the most important current issues facing the organization
now. 2. Suggest action plans to address each issue over the next 6-12 months.
3. Include that information in a Strategic Plan. After an issues-based plan has
been implemented and the current, major issues are resolved, then the
organization might undertake the more ambitious conventional model.
• Model Three - Organic Strategic Planning. too confining and linear in nature. produces a
long sequence of orderly activities to do, as if organizations will remain static and
predictable while all of those activities are underway.
• 1. With as many people as can be gathered, for example, from the community or
generation, articulate the long-term vision and perhaps values to work toward the
vision. 2. Each person leaves that visioning, having selected at least one realistic action
that he or she will take toward the vision before the group meets again, for example, in
a month or two. 3. People meet regularly to report the actions that they took and what
they learned from them. The vision might be further clarified during these meetings. 4.
Occasionally, the vision and the lists of accomplished and intended actions are included
in a Strategic Plan.
• Model Four -- Real-Time Strategic Planning. is suited especially for people who believe
that organizations are often changing much too rapidly for long-term, detailed planning
to remain relevant. 1. Articulate the mission, and perhaps the vision and/or values. 2.
Assign planners to research the external environment and, as a result, to suggest a list
of opportunities and of threats facing the organization. 3. Present the lists to the Board
and other members of the organization for strategic thinking and discussions. 4. Soon
after (perhaps during the next month) assign planners to evaluate the internal workings
of the organization and, as a result, to suggest a list of strengths and of weaknesses in
the organization. 5. Present these lists to the Board and other members of the
organization for strategic thinking and discussions, perhaps using a SWOT analysis to
analyze all four lists. 6. Repeat steps 2-5 regularly, for example, every six months or year
and document the results in a Strategic Plan.
• Model Five -- Alignment Model of Strategic Planning. ensure strong
alignment of the organization’s internal operations with achieving an
overall goal, for example, to increase productivity or profitability, or to
successfully integrate a new cross-functional system, such as a new
computer system. 1. Establish the overall goal for the alignment. 2.
Analyze which internal operations are most directly aligned with achieving
that goal, and which are not. 3. Establish goals to more effectively align
operations to achieving the overall goal. Methods to achieving the goals
might include organizational performance management models, for
example, Business Process Re-engineering or models of quality
management, such as the TQM or ISO models. 4. Include that information
in the Strategic Plan. Similar to issues-based planning, many people might
assert that the alignment model is really internal development planning,
rather than strategic planning. Similarly, others would argue that the
model is very strategic because it positions the organization for much
more successful outward-looking and longer term planning later on.
 Inspirational Model of Strategic Planning
• Used when planners see themselves as having very little time available for
planning and/or there is high priority on rather quickly producing a
Strategic Plan document.
• 1. Attempt to gather Board members and key employees together for
planning. 2. Begin by fantasizing a highly inspirational vision for the
organization -- or by giving extended attention to wording in the mission
statement, especially to include powerful and poignant wording. 3. Then
brainstorm exciting, far-reaching goals to even more effectively serve
customers and clients. 4. Then include the vision and goals the Strategic
Plan. While this model can be highly energizing, it might produce a Plan
that is far too unrealistic (especially for an organization that already
struggles to find time for planning) and, as a result, can be less likely to
make a strategic impact on the organization and those it serves.