Understanding the Relationship between Strategic and Financial Planning
Article by ciel s cantoria (73,004 pts 
)
) Edited & published by Rebecca Scudder (76,491 pts ) on Mar 17, 2011
) on Mar 17, 2011What is the Relationship between Strategic Planning and Financial Planning?
One of the business lessons learned from the recent economic depression is the understanding that there is a significant relationship between strategic and financial planning. Business strategies have to take into consideration the available resources and the viability of the project --- not just in terms of profit, but also in terms of growth.
A project may have generated only a modest amount of profit but if such profit was generated without resorting to borrowing or without having to rely on capital financing, then that denotes growth. The business strategy employed allowed the company to increase the proportion of its assets over its liabilities -- wherein the difference between these two components is the owner's or the stockholders' equity.
However, the initial step in understanding the relationship between strategic and financial planning is to first have a more vivid comprehension of strategic planning as a business process..
What is Strategic Planning ?
Strategic planning encompasses a broader concept of a business plan where projections to be made go beyond financial planning and current market forecasts.
Defining your Business Objectives- The process starts by clearly defining your business objectives, aside from the concept of profit making. This may sound vague but as an example, your other business objective can be as simple as stating your company's vision or mission; e.g. "To be recognized as a certified and reliable provider of Eco-friendly toys.”
Assessing your Business Strengths and Weaknesses- Strategic planning also involves formulating business strategies based on your internal set-up as well as the external factors that can affect your business. This entails assessing your strengths and weaknesses of how you run and operate your business. If your trade is home-based, one of your possible weaknesses is that your business lacks the image that can project its capacity to meet increased production demands. This means that you have to make sure that there is an existing and viable market for your product.
Effective business strategies mean creating an advantage by keeping your investment exposure at low levels. In so doing, it will bring you financial independence because you can build your business and its image without relying on investors for future growth.
However, all these entail evaluating external factors such as technological advancements, federal environmental regulations, global trade and foreign exchange rates, employment regulations, political unrest and the likes. These external factors may affect the demand or marketability of your product.
Analyzing your Business Industry- In analyzing your business industry, what you should consider first is whether the full-scale manufacture of your product will be capital intensive or if there are possible alternatives, substitutes or financial grants available to meet the potential demands of the industry.
Is your product susceptible to obsolescence in the light of technological developments and advancements or can your product hold its own by targeting consumers who are averse to the effects of technical gizmos? You will also have to consider your competitors and how you intend to compete against well-established brand names. These are only some of the areas to consider, in analyzing how you stand to gain in your chosen business industry.
Defining your Business Objectives- The process starts by clearly defining your business objectives, aside from the concept of profit making. This may sound vague but as an example, your other business objective can be as simple as stating your company's vision or mission; e.g. "To be recognized as a certified and reliable provider of Eco-friendly toys.”
Assessing your Business Strengths and Weaknesses- Strategic planning also involves formulating business strategies based on your internal set-up as well as the external factors that can affect your business. This entails assessing your strengths and weaknesses of how you run and operate your business. If your trade is home-based, one of your possible weaknesses is that your business lacks the image that can project its capacity to meet increased production demands. This means that you have to make sure that there is an existing and viable market for your product.
Effective business strategies mean creating an advantage by keeping your investment exposure at low levels. In so doing, it will bring you financial independence because you can build your business and its image without relying on investors for future growth.
However, all these entail evaluating external factors such as technological advancements, federal environmental regulations, global trade and foreign exchange rates, employment regulations, political unrest and the likes. These external factors may affect the demand or marketability of your product.
Analyzing your Business Industry- In analyzing your business industry, what you should consider first is whether the full-scale manufacture of your product will be capital intensive or if there are possible alternatives, substitutes or financial grants available to meet the potential demands of the industry.
Is your product susceptible to obsolescence in the light of technological developments and advancements or can your product hold its own by targeting consumers who are averse to the effects of technical gizmos? You will also have to consider your competitors and how you intend to compete against well-established brand names. These are only some of the areas to consider, in analyzing how you stand to gain in your chosen business industry.
What will be the Effect of Your Strategic Planning to Your Financial Planning?
As an entrepreneur, your business budget should be segregated from your personal funds. The business budget becomes part of a financial plan because you will aim to project the most realistic income from a defined and limited amount of financial resources. The financial planning processes will include working out your operating expenses and staying within a safe margin, thus limiting your exposure to the impacts of inherent or unexpected business risks.
Integrating Business Strategies with Financial Planning
1. Determining your Market Share to Determine Your Cash-Inflow
To determine your market share you will have to research the current market preferences; this is often done by conducting business surveys as part of your marketing process. You may want to do it on your own to keep your expenses minimal, since there are websites who offer free survey forms and downloadable survey software. A 30-day trial period can be a good start.
Please proceed to the next page where our discussion of the relationship between strategic and financial planning continues.
To determine your market share you will have to research the current market preferences; this is often done by conducting business surveys as part of your marketing process. You may want to do it on your own to keep your expenses minimal, since there are websites who offer free survey forms and downloadable survey software. A 30-day trial period can be a good start.
Please proceed to the next page where our discussion of the relationship between strategic and financial planning continues.
We will meet with you twice a year (or more frequently if required) to ensure that your financial plan is implemented properly and reviewed to ensure that you are on course to achieve your goals. James Gerrard Financial Advisors
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