Strategic Financial Management in Small and Medium-Sized Enterprises
Abstract
Along with the development of social economy and the progress of science and technology, Chinese enterprises are being in a stage filled with opportunities and dangers. This paper introduces the connotation and significance of strategic financial management, elaborates the problems in the financial strategies conducted by small and medium-sized enterprises together with the causes and proposes some countermeasures finally.
Keywords: Small and medium-sized enterprises, Strategic financial management, Problems, Countermeasures
The uncertainty of an enterprise’s financial environment fills its financial activities with risks. In addition to opportunities, quite a lot of dangers arise from time to time in its financial management. Therefore, it has become the key to the success of an enterprise’s financial management whether it can keep track of the trends of changes and absorbe what is useful while rejecting what is harmful. Strategic management ideas are significant in enterprises’ financial management since we must make efforts to analyze and grasp the general environment and development tendency of an enterprise and therefore to improve the adaptability, changeability and applicability of financial management to uncertain environment. Currently, over 10,000,000 small and medium-sized enterprises have passed the industrial and commercial registration, taking up 90% of the total enterprises in China. Accordingly, their strategic financial management is of particular importance, which is also the topic of this paper.
1.Connotation and Main Contents of Strategic Financial Management
Strategic financial management refers to financial management theories according to which financing should be conducted in the most proper way, the collected capital should be utilized and managed in the most effective way in enterprises and decisions on the reinvestment and distribution of profits should be made most reasonably. According to its connotation, we can sum up the three main contents of strategic financial management, including financing strategy, investment strategy and profit-distribution strategy. Details are as follows:
Financing strategy
Highly developed modern enterprises are characterized by sharp growth in sales. When faced up with such a situation, enterprises tend to have great demands for capital since stocks and receivables are increased as well. The greater the tension of sales growth is, the greater capital demands will be. Therefore, financing strategy is of significance in strategic financial management. The functions of financing strategy lie in clarifying the guidelines for financing, laying down financing objectives, establishing the overall scale, channels and methods of financing, arranging strategic schemes of capital structure optimization, laying down relevant countermeasures in order to achieve the financing objectives, and finally predicting and collecting the amount of capital the enterprise needs.
Investment strategy
As the core of strategic financial management, this strategy determines whether an enterprise can allocate its capital and resources in a reasonable and effective way or not. Investment strategy involves the confirmation of the investment direction of fixed assets, corporate scale and capital scale, the investment choices related to external expansion or internal expansion, the reform of old products or the development of new ones, independent or joint operation, investment with self-capital or with loans and decisions on the percentage between fixed assets and current assets, investment strategies with risks and those during inflation.
Profit-distribution strategy
This strategy, including the management of capital gains and the establishment of stock bonus distribution, mainly deals with the proportion an enterprise puts aside in a long run for reproduction on an expanded scale, improvement of employees’ welfare and their living standards. Profit-distribution strategy is intended to satisfy the demands for equity capital in the development and improvement of enterprises’ core competitiveness based on relevant investment strategy and financing strategy. Meanwhile, when carrying out this strategy, enterprises are expected to establish talent-oriented distribution policies by exploring effective methods to apply those important elements such as knowledge, technique,patent and management to the profit-distribution course.
2.Problems in Strategic Financial Management of Small and Medium-Sized Enterprises in China
Currently, some common problems include:
2.1Lacking in Scientific and Standardized Financial Strategies
Quite a few enterprises are pursuing only a large scale, or purchasing a large amount of land while neglecting asset structure allocation, or having no reasonable arrangement for its capital. They have no financial strategies at all, not to mention their implementation. As for some others, the effect of their strategic financial management is greatly affected due to their unscientific and irregular strategies, which are characterized by the following features: first, their strategic financial aims depart from their enterprises’ overall ones; second, financial strategies are regarded equal to financial plans, hence neglecting the comprehensiveness of financial strategies; third, financial strategies are not made based on their enterprises’ long-term goals and therefore have great randomness.
2.2Neglecting Strategic Environment Analysis and Having Unreasonable Strategic Financial Goals
Strategic environment analysis is both the foundation of financial strategies and the guarantee for its implementation. It includes internal and external environment analysis with the former being the internal
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