Aim of a for profit organisation
Maximise the wealth of shareholders
Shareholder wealth can be maximised through
- Payment of dividends
- Increase in the share price, creating a capital gain
Shareholder wealth can only be achieved with
Support and co-operation of wider stakeholder group
Aim for not for profit organisation
Do not have a primary profit motive - need to create value for money
Value for money framework (3)
- Economy - cost of inputs
- Efficiency - ratio in inputs to outputs
- Effectiveness - quality of outputs
Rational planning model - three stages
1) Where are we now?
2) Where do we want to be?
3) How shall we bridge the gap?
Where are we now? - SWOT analysis
Internal - Strengths - Weaknesses External - Opportunities - Threats
Where do we want to be? - SAF
- Suitable
- Acceptable
- Feasible
Suitable
Does it further the overall goals and objectives of business
Acceptable
Is it appropriate/ ethical
Feasible
Is it possible
How shall we bridge the gap?
Mendelow’s stakeholder map - categorises and prioritises stakeholders according to power they wield
Financial strategy
Should assist the organisation in meeting overall objectives
Long term financial strategy
Maximising shareholder wealth
Short term financial strategy
Not running out of cash as long term strategies are executed
Long term financial strategy > three key decisions
- Financing - where should we get money from?
- Investment - what should we do with money once we have it?
- Dividend - should we provide a return to shareholders or reinvest?
Three decisions inextricably linked
Long term financial strategy > three key decisions > age of business
The age of the business (start up/ mature) will impact the three key decisions significantly
Liquidity management
Business needs to plan to ensure sufficient (but not excessive) cash available to pay immediate liabilities of organisation
Chair of board (2)
- Manager of directors
- Ensures long term strategic direction of business
Chief Executive Officer (CEO) (2)
- Lead executive responsible for operations of the business
- Manager of the executives
Finance Director (3)
- Executive director
- Two roles:
- Head of finance
- Director on the board
