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Financial strategy, step by step

The objective of financial management is the maximization of shareholders’ wealth. To satisfy this objective a company requires a long term course of action. The Inter-American Investment Corporation (IIC) reveals the importance of implementing an adequate financial management strategy for meeting this objective.

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This is the first part of a series of articles that will serve as a guide for businessmen seeking to define and carry out a corporate strategy by implementing financial procedures with the objective of maximizing wealth over the long term. We will present the management processes that must take place upon applying a financial strategy in addition to a detailed description of the main financial management functions and operating methods accompanying same.

Starting at the tip of the pyramid, the corporate strategy is the first thing that a company must define to implement a successful financial scheme. It must consist of an overall, long term plan of action that comprises a portfolio of functional strategies (finance, marketing etc.) designed to meet the specified objective.Inter-American Investment Corporation (IIC)

Financial strategy is the following important element upon implementing the plan. It is the portfolio constituent of the corporate strategic plan that embraces the optimum investment and financing decisions required to attain an overall specified objective.  It is also the area of managerial policy that determines the investment and financial decisions, which are preconditions for shareholder wealth maximization.  

Each type of decision can be subdivided into two broad categories. Those that are longer term, considered as strategic or tactical decisions and those that are short term, known as operational decisions.

Financial Management

Financial Management is concerned with the acquisition, financing and management of assets. It is the process of managing the financial resources of the company. It also includes accounting and financial reporting, budgeting, collecting accounts receivable, risk management, and insurance for a business, in alignment with the set financial strategy. 

In brief, it consists of the use of financial information, skills, and methods to make the best use of an organization's resources. A well-developed financial strategy can help the businessman to: 

  • Effectively manage the company’s assets. 
  • Invest wisely 
  • Support operations 
  • Provide means for future growth 
  • Make decisions on how best to finance the company. 
  • Meet the needs of customers & employees 
  • Compensate shareholders for their risk 

In order to meet the corporate strategy objective, the financial director is responsible for covering a wide array of functions. The financial management operations that the manager must supervise include:  

  • Raising sufficient capital for the assets needed by your business 
  • Earning adequate profit consistently and predictably 
  • Managing cash flow from profit 
  • Minimizing threats of fraud and other losses 
  • Minimizing the income tax burden on your business and its owners 
  • Forecasting the cash needs of your business 
  • Keeping your financial condition in good shape and out of trouble 
  • Putting a value on your business when the time comes
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