Strategic Strategy: An Essential Aspect of Corporate Growth
Strategic strategy is an essential aspect of corporate growth. The strategic strategy, as opposed to conventional corporate planning, includes a number of components such as mission and vision. As a result, the strategic strategy explains where the management wishes the business to go. Strategic planning adequately describes the company's direction; however, it does not explain the means of getting there.
The Importance of Strategic Planning in Financial Management
Despite the fact that it is often confused with corporate strategies, strategic planning is an assertion of ownership by visions and aspirations of successful outcomes. Strategic planning is important in financial management because it contributes significantly to the company's growth. Wanda (2017). Strategic financial planning helps in the proper management of finance over time in such a manner that an individual can meet the business needs. Through strategic financial planning, the person can determine the direction of the business through the allocation of the available finance.
Developing a Strategic Plan for the Business
Developing a strategic plan for the business enables the owner to determine the amount of money and the degrees to entertain (Wanda, 2017). For example, when a business owner has $20,000 budget with only three options costing $22,000, $18,000 and $16,000, the business owner will understand that he/she cannot afford the $22,000 option. There is need to develop either of the remaining options based on the other factors. The budget remains the first item to be examined will seeking the strategy to adopt.
The Benefits of Strategic Planning
Strategic planning provides the direction for progression by the business. With the directions and road maps, finances can be allocated efficiently ultimately increasing the revenue. Increased revenue and decreased costs subsequently lead to more money to be used in the business. Strategic planning ensures that the subsequent budget is more than the previous budget and increases performance than before.
The Role of Strategic Planning in Cash Flow Management
It doesn't make sense at all for companies with positive cash flow to seek external financing since the cash flow can be strategically planned for as a budget to realize more revenue. Since strategic planning provides the companies roadmap, the cash flow can be properly planned for to eliminate the inefficiency that would lead to external financing.
Part B
Financial Statements and Their Functions
It is a fact that all organizations prepare and issue various financial statements whose general purpose is providing details about the results of the operations, cash flow and financial position of the company at a given time (Steven, 2012). These are some of the financial statements with their functions;
- Income Statement: The income statement is a financial statement reporting an organization's financial performance after a given accounting period. The performance is assessed by reviewing the extent in which business incurs revenue and expenses through its activities.
- Balance Sheet: The balance sheet is also defined as a statement of financial position (Stephen, 2012). It provides details of practices on financial status at a given time. The statement details assets, liabilities, and equity as at a particular year and it is prepared at the end of a trading period.
- Statement of Cash Flow: Statement of cash flow is a document that shows the changes in a balance sheet or changes in accounts. The changes in accounts are reflected in the balance sheet form one trading period to the next (IFAC, 2012).
- Statement of Owner's Equity: Statement of owner's equity is a statement representing the remaining assets after deduction of the liabilities (Stephen, 2012). In simple terms, it represents the remaining money after all the assets are sold and paid for everything that you the company owed.
Business Questions Answered by Accounting Information
Calculate the company's financial position at the end of the trading period. The question is best answered by balance sheet since it determines the financial status/position at the end of each trading period. What is the loss incurred by the company? The question is best answered by income statement. The statement provides a review of both the revenue and expenses of the business. Determine the balance carried forward to the next trading period. The question has properly answered the statement of cash flow as it records the changes in accounts of the balance sheet. What are the current assets of the company? The question is best answered by the statement of owner's equity since it calculates the company worth after deductions.
References
International Federation of Accountants- IFAC. (2012). Financial Statement Discussion
and Analysis. Retrieved on 1st Nov. 2017 from https://www.ifac.org/system/files/publications/files/Financial%20Statement%20Discussion%20and%20Analysis_0.pdf
Steven Bragg. (2012). The purpose of financial statements. Retrieved on 1st Nov. 2017
from https://www.accountingtools.com/articles/what-is-the-purpose-of-financial-statements.html
Wanda Thibodeaux. (2012). The Relationship Between Strategic & Financial
Planning. Retrieved on 1st Nov. 2017 from http://smallbusiness.chron.com/relationship-between-strategic-financial-planning-21063.html
