The role of strategic finance in modern business

What is strategic finance?

Strategic finance is a financial business partnering approach that many accountants know as aligning financial goals with the overall strategy of your organization. The concept has been around for awhile but it has often been difficult to achieve. Now with more flexible FP&A software available, it is easier to get that longer-term financial view by combining financial and operational data to support your financial planning and forecasting. 

If you are a CFO, we imagine you have been assessing whether your own operations are strategic. There is also more understanding of the concept and its benefits so the business partners within your organization are interested in participating in strategic finance. They too want the finance team to achieve this type of strategic financial management.  

To achieve strategic finance comprehensively and to ensure the whole business benefits, strong data management and planning tools are required. 

It is recommended to use a platform that combines business intelligence with financial planning and analysis (BI and FP&A) so that real-time analysis, financial modeling, scenario planning, sales forecasting and financial reporting can all be achieved in one platform. All this strategic planning requires day-to-day updates of actuals to also flow into the platform via automation. 

Why strategic finance is getting a lot of attention 

Strategic finance puts the finance department in charge of your company’s future. As finance professionals have an excellent grasp of the numbers and the ability to measure opportunity and risk, it is an idea whose time has come. For the finance team to build trust and collaboration in this approach across the business, up-to-date consolidated data is required so every department is included and connected to the strategic planning. 

When done well, strategic finance increases long-term profitability and improves risk management. With the help of a BI and FP&A platform the finance manager can spend less time on traditional accounting tasks like reporting and instead have the time to help others achieve business growth by encouraging them to carry out demand planning and sales forecasting, so they are making informed decisions about how to manage customers, inventory and people. 

The budgeting process also benefits from strategic finance because finance now has the data and tools to collaborate with all business partners and achieve bottom-up budgets. More people buy into and are accountable for the budget numbers. People are more aware of real-time financial performance so can make changes and address areas of the budget that aren’t working. By adapting quickly, people can rescue customer relationships or buy more stock before the risk or opportunity has passed. 

Signs you might need strategic finance  

Lack of time can be telling; it sounds obvious but it’s true and if your finance team has limited time to review key metrics like cashflow or profitability then it sounds like their days are tied up with financial tasks that can be automated.  

Data is another real problem preventing finance teams from helping others make clear business decisions. Some finance teams can lose up to 5 days a month wrangling data for month-end, budgeting, analysis and reporting and then they not always be sure whether they have all the data they need. Financial and operational data is essential to build a budget model with business partners so if you’re struggling to complete these important tasks with consolidated data, then a more data-driven approach will be beneficial to make financial and operational decisions. Data can also get out of control when you acquire another business or simply from increasing sales. When you’re business becomes more complex, the data problems get worse so it is best to invest in the right tech that can expand and support your business strategy. 

What is included in strategic finance? 

The strategic finance function’s main initiatives include developing plans to meet a business’s financial goals - these can be short-term but the focus is longer term. 

Short-term planning is often mainly about managing cash so a business has sufficient inflows and outflows to fulfil all obligations. 

Long term planning or strategic budgeting is also a key feature of strategic finance. 

Strategic budgeting involves forecasting future financial requirements and allocating resources to match. The main goal is to make sure financial decisions support the company's overarching objectives. 

Strategic budgeting helps by providing the company with a clear financial plan that allows for better decision-making, forecasting, and management of resources. 

When a financial planning and analytics platform is used to carry out strategic budgeting then budgets can be linked to financial reports; facilitating the daily monitoring of results, allowing for timely monthly adjustments after the books are closed.  

The platform also allows rolling forecasts to be implemented and scenario planning done before the budget is formally agreed. Financial scenario planning is used to test whether the budget aligns with your strategic objectives. 

Reporting and preparing financial statements are another important part of strategic finance, as it helps to provide transparency and accountability while allowing stakeholders to track the financial performance of a business.  

This can include preparing financial statements such as the balance sheet, profit and loss (income statement) and cashflow statements. 

When there is access to all the financial and operational information, finance can budget in more detail and streamline all the specialized sub-plans with all the different departments. Accurate and live data helps to implement demand planning and sales forecasting as well as pricing models across your product categories and sub-categories.  

Headcount planning is always crucial for your budget because it is usually the largest expense and common to all businesses. This powerful functionality is also built-in and saves finance from running many models for headcount.  Finance and human resources can account for every person, including new starters and leavers in the budget period helping the business keep a handle on your most important costs.  

Strategic finance includes identifying and evaluating potential financial risks that could impact the performance of a business, and creating financial contingency plans to mitigate these risks. This can include risks like changes in market conditions, severe weather events or supply chain issues. 

The workforce in finance is changing and for those who can carry out strategic finance your businesses will prosper. All strategic decisions will be linked to the financial and operational strategies as everyone has access to holistic performance of their role in the business.