Strategic Financial Management

It is axiom-e's view that all businesses need to have:

• a clear and realistic strategy,
• the financial resources, controls and systems to see it through and
• the right management team and processes to make it happen.

We summarise this by saying that:

These three elements can be defined as follows:

Strategy: a carefully devised plan of action to achieve a goal, or the art of developing or carrying out such a plan

Finance: the business or art of managing the monetary resources of an organisation

Management: the organising and controlling of the affairs of a business or a particular sector of a business

We always seek to take into account these three elements when providing advice or working within organisations.

We call our overall approach strategic financial management and define it as being the application to strategic decisions of financial techniques in order to help achieve the decision-maker's objectives.

Such an approach presupposes a clear goal or objective. Where necessary, we work with businesses to clarify their goal before reviewing (or helping to develop) their strategy.

According to Professor Michael Porter of Harvard Business School,

Fundamental to the success of any company and to any effort to develop strategy is having a proper goal for business clearly in mind.
(Rod Newing, "Crucial importance of clear business goals", Financial Times, 5th June 2002)

Other definitions of strategic financial management exist which indicate some of the key issues on which we focus. These include:

The identification of the possible strategies capable of maximising an organisation's net present value, the allocation of scarce capital resources among the competing opportunities and the implementation and monitoring of the chosen strategy so as to achieve stated objectives.
(CIMA Management Accounting: Official Terminology)

The assessment of strategic options, choices and business performance by both strategic and financial analysis.
(Grundy, A Exploring Strategic Financial Management)

axiom-e believes that as a result of good strategic financial management, shareholder value is created. Indeed, one of our courses is entitled "Creating Shareholder Value - the role of strategic financial management" where the link between financial objectives (focused on generating cash), the traditional strategic objective of maximising shareholder wealth and good management is explained.

The relationship between these three factors is encapsulated by the following quotations from Alfred Rappaport's book Creating Shareholder Value:

To continue to serve all stakeholders, companies must be competitive if they are to survive.

A company's long-term destiny depends on a financial relationship with each stakeholder that has an interest in the company.

To satisfy (stakeholders' various) claims, management must generate cash by operating its businesses efficiently.

This emphasis on long-term cash flow is the essence of the shareholder value approach.

In brief, a value-creating company benefits not only its shareholders but the value of all other stakeholder claims, while all stakeholders are vulnerable when management fails to create shareholder value. Enlightened self-interest dictates that shareholders and other stakeholders actively engage in a partnership of value creation.

Strategic financial management: not only accounting but also financial management

Although linked with accounting, the focus of strategic financial management is different. As David Allen notes in his book Strategic Financial Decisions: A Guide to the Evaluation and Monitoring of Business Strategy, strategic financial management combines the backward-looking, report-focused discipline of (financial) accounting with the more dynamic, forward-looking subject of financial management. The key elements of each, which combine to provide the essence of strategic financial management, are:

axiom-e's staff have many years' experience of financial accounting, management accounting and financial management. We focus on adding value to your company through the provision of strategic financial management advice and, as appropriate, undertaking the work necessary to implement such advice.

axiom-e...the Strategic Financial Management Consultancy
97 Brewery Road, Pampisford, Cambridge CB22 3EW United Kingdom
Tel: +44 (0)1223 839579 Fax: +44 (0)1223 839581 Email: info@axiom-e.co.uk