FINANCIAL STRATEGY, A strategy is about how organizations translate their long-term goals into the actions they undertake on a day-to-day basis. A financial strategy is therefore the link between the organization’s long-term service objectives and its financial capacity. BMKFA’s long-term service objectives are set out in the Public Safety Plan and Corporate Plan.
A financial strategy will set out:
- where the organization is now – the current financial position, including assets, liabilities, reserves and the main sources of income
- where it would like to be – how the finances will be developed over the period, including planned level of reserves, the balance of income from different sources and/or the development of new income streams
- how it plans to get there – what actions will be taken to achieve the financial objectives
WHY A FINANCIAL STRATEGY IS IMPORTANT?
- A financial strategy sets out how an organization will finance the implementation of its long-term objectives. Without a financial strategy there is a risk that the long-term objectives may remain unfulfilled.
- A financial strategy helps organizations to consider the feasibility of different options in terms of affordability and financial sustainability.
- As well as being essential to longer-term planning, a financial strategy also provides an effective framework for medium and short-term financial plans.
- Each planning horizon contributes in different ways to the effective financial management of an organization.
AIMS OF THE FINANCIAL STRATEGY
The primary aim of a financial strategy is to enable the delivery of the organization’s overall strategy.
Factors that need to be considered include:
- The nature, level and balance of the organization’s sources of income
- The organization’s exposure to volatile income streams
- The organization’s cost base, especially its overhead costs
- The financial structure and staffing of the organization
- The organization’s financial management policies, systems and processes
- The organization’s relationships with key financial stakeholders
Another important factor to consider when developing a financial strategy is the organization’s financial autonomy i.e. the extent to which it is able to influence its own activity and funding (e.g. through generating income or setting the Council Tax rate) as opposed to having to perform certain activities or having less control over the funding it receives.
As well as the benefits noted on the previous page, a financial strategy also benefits the organization in a number of other ways.
Helping to scrutinize, challenge and improve the organization’s overall strategy
- Exploring how the organization’s strategy can be achieved from a financial perspective
- Identifying potential difficulties or contradictions in the organization’s strategy and its implementation
- Acting as a practical constraint or moderating factor on the organization’s strategy
Improving the organization’s financial resilience
- Helping to maintain and improve the organization’s financial solvency and/or liquidity
- Increasing the value and diversity of income from public, commercial and other sources
- Enhancing the organization’s ability to manage financial risk effectively
Enhancing the organization’s financial capacity and capability
- Helping to elucidate key financial principles within the organization, e.g., balanced budgets, limits to borrowing, use of reserves
- Providing clarity around the cross-subsidy of different activities
- Promoting financial awareness across the organization
- Acting as a basis for monitoring the financial health of the organization
- Demonstrating financial probity and accountability
Helping the organization to make better use of its resources
- Informing the allocation of resources to departments, teams and activities
- Helping to generate funds for future investment
- Promoting and demonstrating the achievement of value for money
Co-ordinating financial activity across the organization
- Acting as a financial reference point for the organization
- Helping to co-ordinate financial and other activities across the organization
- Enabling the flexibility required to respond to changing circumstances or to short-term opportunities.
THE APPROACH TO DEVELOPING A FINANCIAL STRATEGY
The financial strategy needs to address three key elements:
- Where the organization is now
- Where it would like to be
- How it plans to get there