| Strategic Aspects for Financial Strategy |
What to Consider |
| Information Technology |
What are the requirements for the information system? Which functions should it perform in terms of the company’s needs? Typically, these are (Červený et al. – manuscript, anticipated publication date: 2015):
- Financial Accounting: general ledger, receivables, payables, cash, electronic banking, consolidation
- Managerial Accounting: cost center accounting, profit centers, cost accounting for orders and project accounting, process management, managerial financial statements, activity-based costing support
- Controlling: management of costs, revenues, resources and schedules, analyses, dashboards, KPI monitoring, assessing plans in relation to real situations
- Accounting and management of fixed assets, planning and monitoring of non-finalized investments
- Cash management, liquidity forecasting, cash flow planning, financial planning and budgets, risk management, foreign exchange transactions and security transactions
- Calculating and paying wages
- Record-keeping using other accounting standards (IFRS, US GAAP, etc.)
- Accounting using foreign currencies and exchange rates etc.
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| Financial Controls |
- What type of financial controls (in terms of risks, costs etc.) should be implemented?
- Are the current financial controls set up appropriately with regard to the needs of the company?
- Control mechanisms for the following aspects should be addressed (adapted from Červený et al. – manuscript, anticipated publication date: 2015):
- Reliability and integration of accounting and financial information
- Compliance with main financial policies, plans, procedures, legislature, regulations and contracts
- Protection of the company’s assets
- Economic and efficient utilization of company resources
- Fulfillment of financial plans and targets
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| Internal Financial Information |
- What type of financial information (reports) should be monitored? What are the users’ needs? This could include:
- Basic performance parameters (targets) of the company – profit development, turnover, profit margins etc.
- Basic data about product and service sales
- Analysis of production variance (difference between estimates and actual net prices/costs of input products – direct/indirect wages, utilities, maintenance, analyses of other variable costs, productivity, depreciation, percentage of fixed production costs and administrative overhead etc.
- How and how often should the above be monitored?
- Where to source input data from (with feasible time and cost demands for processing), who will be responsible for creating reports?
- Who will these reports be intended for? With regard to company management, how will identified errors be handled?
- How to ensure the distribution and protection of data? (adapted from Červený et al. – manuscript, anticipated publication date: 2015)
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| External Financial Information |
- For whom, in what form, using which channels (e.g. websites etc.) and to what extent should external financial information be prepared?
- How to ensure the provision of financial information in a timely and cost-effective manner?
- How to ensure that this information is prepared in compliance with accounting and book-keeping regulations?
- Is it necessary to have an external auditor audit financial statements? If so, are the audits being carried out properly and in a timely fashion?
- What type of external information should be provided? (adapted from Červený et al. – manuscript, anticipated publication date: 2015)
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| Investment Politics |
- Whether to invest and what to invest in?
- When to invest?
- Where to draw investment funds from?
- How to assess investments?
- How to prepare an investment plan? (adapted from Červený et al. – manuscript, anticipated publication date: 2015)
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| Optimization of Capital Structure |
- In terms of cost and risk potential, what is the optimal level of indebtedness for the company?
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| Working Capital and Cash Flow |
- What is the optimal amount of working capital (e.g. inventory) in terms of the rate of production, sales, etc.?
- How to manage cash flow?
- How to manage debt collection?
- How to manage short-term commitments?
- How to manage and optimize financial assets? Etc.
(adapted from Červený et al. – manuscript, anticipated publication date: 2015) |
| Internal Financing Resources |
- How to create and work with internal financing resources? These primarily include:
- Retained income
- Depreciation
- Changes in capital structure
- Reserves and reserve funds
- Financing with capital contributions (Sedláček, 2001)
- Will we select linear or accelerated depreciation of fixed assets?
- How to set up accounting depreciation in terms of tax write-offs?
- Is depreciation the source of simple reproduction or also the expanded reproduction of worn assets?
- Have activities been broken down into those that are necessary and unnecessary?
- How are individual assets utilized?
- What is the profitability of individual assets?
- Can these be converted into profitable assets?
- Is it necessary to create reserve funds? For what purpose?
- Is it possible that liabilities are being overestimated when creating reserve funds?
- Is reserve discounting performed in the event that time value of money becomes relevant?
- Are future developments in the areas of legislation and technology taken into consideration?
- Are reserves audited every year, ensuring that their size is appropriate and justified?
- Have reserves been used for their intended purpose?
- What is the equity level?
- Is it more beneficial to raise equity by increasing basic capital or by contributing to other capital funds? (adapted from Červený et al. – manuscript, anticipated publication date: 2015)
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| External Financing Resources |
- Whether and (possibly) which external financing resources should the company use? e.g. (adapted from Červený et al. – manuscript, anticipated publication date: 2015):
- Bank loans
- Supplier loans: the supplier does not require immediate payment
- Down payments: payments made by the customer when ordering goods or services
- Obligations towards employees: wages due or in-house bank
- Obligations towards the state budget
- Bonds, obligations
- Promissory note program: issuing short-term securities in the form of promissory notes
- Subsidies: support from the government or state
- Donations
- Factoring – purchasing, financing, administration and collection of receivables for the delivery of goods or services. It is carried out by specialized financial institutions.
- Forfaiting- purchasing secured medium or long-term export receivables, carried out by specialized financial institutions without recourse to the original creditor.
- Leasing – primarily the lease of movables, provided by financial institutions.
- Alternative financing options:
- Business Angel – An investor who provides capital for start-up SMEs with growth potential, with the intention of assessing invested capital. The investor provides the company with know-how, usually entering in the early stages of the company’s creation.
- Venture capital – A capital fund provided to early-stage, start-up companies, meant to increase the company’s base capital. Sales are projected for a 3-7 year time-frame, with an estimated 30% p.a. interest rate
- Non-debt financing – e.g. credit unions
- Business incubators – specialized institutions that offer advantageous loans and leasing etc.
- Project funding: funding specific projects, regardless of current business operations, as in the future they will generate their own revenue – can be divided into SPVs- Special Purpose Vehicles
Criteria for selecting an external financing source (adapted from Červený et al. – manuscript, anticipated publication date: 2015):
- What is the legal status of the external financing provider?
- What is the maturity of capital?
- Where do the sources come from?
- Is the time factor taken into account?
- Is the risk factor taken into account?
- How much does the capital cost?
- How flexible are individual external financing sources?
- What administrative processes are connected to the provision of external financing?
- What is the competition like in terms of providing the given type of financing?
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| Cost and Profit Management |
- What are the company’s cost and profit targets?
- Which methods should be employed for monitoring target fulfillment and how often should it be carried out?
- How to manage and control company costs? (time-sensitive budgets and monitoring expenditure, optimization of cost structure, financial calculations when launching new products and services etc.)
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| Tax Politics |
- How to optimize tax deductions and tax politics? (taking advantage of tax relief, creating reserves and adjustments, creating offshore companies in compliance with ethical standards, tax-efficient legal structures in the company, optimization of company groups, mergers and acquisitions etc.) (adapted from Červený et al. – manuscript, anticipated publication date: 2015)
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| Managing Financial Risks |
- Approach to managing the following risks:
- Credit risk
- Liquidity risk
- Interest rate risk (changes in interest rates)
- Foreign exchange risk - changes in exchange rates
- Financial derivatives (options, futures and swaps)
- Property damage liability
- Property risk
(adapted from Červený et al. – manuscript, anticipated publication date: 2015) |
| Dividend Politics |
- What type of dividend politics will the company enforce? What will be its approach to profit redemption, creating reserves etc.?
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| Market Value of the Company |
- How to manage and increase the company’s market value in terms of the company’s financial strategy?
- How to address estimates of the company’s market value?
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