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The Difference between Strategic Planning & Financial Planning

August 12, 2010

The question of what’s strategic versus a financial plan comes up often.
In fact when reviewing strategic plans it’s easy to see that they overlap
and at times get confused.  Let me share 3 simple “rules of thumb” I use
to sort this out.

Before I go into what works for me, let’s go over a couple of examples:
1.  Here’s an example of a recent news blurb on Symmetricom.
SAN JOSE, Calif. (AP) — Symmetricom Inc. slid to a loss in the most recent
quarter, hurt by a dip in sales and one-time expenses from paying down
debt and restructuring…

Stripping out $7 million in expenses related to paying off outstanding bonds
and $6 million for restructuring, the company would have earned 12 cents
per share…”

As you read that quote, can you determine if that was part of a financial
plan… or a strategic plan?  Was it strategic or reactive?  Was it on their
strategic plan for 2010, or did it become a necessary tactical move with
a drop in sales?  It’s hard to tell isn’t it?  It could be either or both.

2.  Here’s a few examples of initiatives that commonly appear in strategic plans:

– Improve sales by 20%
– Raise profit margins by 2.5%
– Grow EBITA by 12% over previous year

As you read the statements above, it’s obvious that they are financial
goals, but are they strategic?   I see them so often in one form or another
in strategic plans, so one might think they are strategic, by their prevalence
if for no other reason.   But most of the time, they aren’t really strategic.

Actually most of the time, the three financial initiatives not only aren’t
strategic, but don’t have a strategic plan to support them, and as a
consequence are not likely to be met.  

So let’s go over how I separate the two, financial and strategic, and how
you can too, because keeping them separate in your mind and planning
efforts will help you be a better strategic planner.

Here we go;

1. Growth vs Survival:
1. A strategic plan is a plan for growth, highlighting the goals and
action items that are being selected as the preferred route and emphasis
to drive growth.  It’s like saying, of the 43 different directions the business
could go this year, what are the 3 most promising efforts, that if resourced
will drive growth?

2. A financial plan is a plan to manage limited resources with priority and
ensure survival
  If you were a farmer, it would be similar to your water
plan.  You need to plan to have reserves to meet demands as well as
enough daily flow to keep existing production underway. 

Does the financial plan drive growth?  Yes, ultimately, but it’s not the
same.  One has to survive to grow, but survival isn’t growth.  In farming
language, securing water is not the same as strategically thinking ahead
and predicting where the market is going to go, and deciding which crops
to plant, where and when.

2. 90% of the time Financial Planning Aids Strategic Planning:
Financial planning and financial monitoring is vital to support your strategic
planning and execution.  Most organizations have a difficult time doing much
strategically if they slip into insolvency.  On the other hand many
organizations have financial outcomes listed as part of their strategic plan,
when they really should be outcomes based upon a strategic initiative or effort.

Don’t confuse the two – don’t list your financial goals as a strategic plan.
Keep clear in your planning what is being chosen to drive growth, then
anchor that by framing it in financial outcomes.  E.g. you may decide to
drive growth by re-allocating 5% of your operating capital from Engineering
to CRM, but the strategy is to emphasize CRM over Engineering to drive
growth, not the budget amount or the increase in sales… those are just
resources and outcomes.

Here’s another way to look at it, financial goals, are outcome targets,
but they don’t address the vital strategic questions of:
How are we going to achieve that goal, what specific approach? and
Why do we think the market will respond?

3. 10% of the time, Financial Planning is Strategic Planning:
Financial planning becomes a part of the strategic plan when it moves
beyond “keeping the trains running,” balancing the books, paying
the bills, maintaining cash flow, etc.  and moves into how do we use
or shape finances based upon what it does to growth? 

Returning to the first quote regarding Symmetricom above, their
pay down of debt may have been part of a strategy to reallocate
resources to achieve a strategic initiative… who knows, maybe their
strategy is to be acquired and they want to reduce debt to make themselves
more attractive… or it simply could have been part of managing cash
flow and tactically using available cash… because it was there.
Finance moves can be a fundamental growth driver or primarily
a support function, and most of the time they are the latter.

Bottom Line:

The difference between strategic versus financial planning on a very
basic level is rooted in placing the emphasis on growth vs. survival
or maintenance.  They are both critical, both need to be managed.
But when financial planning (and goals) is mis-identified as a strategy,
most of the time it is a result of a lack of clarity or in-site into what
are the drivers for growth within the market.

Let me know if that helps.

6 Comments. Leave new

October 10, 2010 5:05 pm

This is great! You have given the best statement about clearing out the The Difference between Strategic Planning & Financial Planning.A great help for me, since I’m handling all the financial matters within my business.


Wow – excellent article, certainly has me reflect on the “strategic plans” that I’ve put together. Thank you for sharing.


Thanks for sharing. This is helpful to me!

(One little comment about the last sentence. Did you mean “in-site” or ‘insight’? I think a typo slipped by your editor.)



Thank you for this information. It was very useful.


This article was well written and very useful. Thank you for the information.


I personally tend to agree with all the stuff that was composed within _The Difference
between Strategic Planning & Financial Planning_.
Many thanks for all of the details.Many thanks-Laura


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