If you can help companies make better decisions on how they allocate resources so they can invest in high value opportunities, you will be a powerhouse in your career. This is BYFIQ. Wealth and success come from understanding how finance works in business, and together we'll explore the most important topics to 10X your financial results. My hope is that we can work together soon. Please share and enjoy. Let's talk about strategic finance. Okay, because there's a big difference between strategic and operating finance in companies, and I want to share with you the difference. And I want to also get you excited about strategic finance, because that's the world I live in, that's what we do at Coltivar and I can tell you it is so fulfilling for me. All right, so strategic finance what is it, you may be wondering, and how is it different from operating finance? And is it just a buzzword? No, it's not a buzzword. There's major differences. So let me just explain first what strategic finance actually is, and I'll say finance. I should say finance more, I guess, because my kids always give me grief. They're like dad, it's finance, not finance, but finance just got stuck some years ago, and so I'll just go back and forth. You can say finance, you can say finance, you can say potato, you can say potato. You could judge me, you could think that I say it in a weird way, but nonetheless, here we go.

Strategic finance here's what it is. It's the practice of integrating financial planning, analysis and decision-making FP&A with a company's overall business strategy. Why? To drive long-term growth in value creation. And throughout my content I'm very consistent with this. I'm consistent in my financial pro program. I'm all about helping companies to leverage financials right the world of finance and combine that with strategy to drive greater firm value right. So strategic finance goes beyond traditional finance functions like accounting, reporting, compliance, the transactional stuff We'll get into that. That's operating finance. And instead it focuses on financial insights to shape business direction, allocate resources effectively and maximize profitability and cash flow. All right. So let's compare and contrast the two. And if you can visualize with me a triangle, and at the very bottom of the triangle, at the base, is operating finance. And the reason why that's at the base is because that's the foundation of any accounting and finance department in a business. In the middle, at the core, is strategic finance and at the very top is firm value. That's the pinnacle of all of it. That's what we're trying to do. Is we need operating finance. We need to combine that with strategic finance to ultimately drive firm value.

I could tell you from experience working with a ton of companies that the majority of businesses out there are stuck in the world of operating finance, which isn't a bad thing. No shame, no harm, no foul. You may be listening to this and this may be you as a business owner, and that's totally okay, all right. The thing is, you don't want to stay there and it's really easy to get stuck in operating finance because it can be overwhelming. I know this as a CFO because I went into a business we're doing a billion dollars a year in revenue. We had over 40 people on our team and one of the first things I did I wrote up on the whiteboard. I wrote simplicity, simplify, right. And that was my whole mantra because my team, they were working their butts off right. It's not like they weren't working. It's not like they didn't want to be more strategic. They were just putting in all this time and energy just to close the books and to get the financials out in time and therefore they didn't have time for strategic activities, and that's what makes up strategic finance. So the majority of companies they're engaged in operating financial activities and, sadly, too many businesses are just struggling with the basics, with operating finance, so they can't even get into the world of strategic finance because they don't even have the numbers right.

So let's talk about this In the world of operating finance. Think of these activities as the core, the foundation of FinOps, right, and such activities may include bookkeeping and accounting, financial reporting, budgeting which is a whole other issue and topic in itself cashflow management, cost control and compliance and risk. And when I mentioned compliance, think of taxes, right, and other things that organizations must do to file reports, et cetera, with government entities and other regulatory agencies, right. So that's operating finance. It's just the blocking and tackling, it's dotting the I's crossing the T's and it's just doing the transactional side of the business collecting receipts, entering these into the system, doing debits and credits, reconciling bank accounts, producing the income statement, the balance sheet, the statement of cash flows, managing costs, controlling a budget, measuring variances. All these things make up operating finance.

Now, in this episode, what I want you to hear is that it's not like operating finance is bad and strategic finance is good. It's not that, because you can't have strategic finance without operating finance If your financial operations aren't running smoothly. Guess what? You're not even going to have accurate financial statements to then take and analyze and do all these other cool things that we do with strategic finance. So you have to have the foundation down and things have to be right when it comes to operating finance. All right, if you're working in operating finance, it's not like it's a bad thing. It's not like it's a bad thing. It's not like it's a bad career. You could be very successful in business just by mastering the activities in operating finance. Don't hear me wrong Like, oh, you're not cool enough, you're not with the cool kids. If you don't play in the world of strategic finance, all right. But what I want to do is elevate your thinking, because I spent a lot of years studying accounting and finance.

I worked on the operating finance side right For a while and I was in the transactions. I was doing all the compliance work, which was great because I learned how to do debits and credits, how to work with trial balances and general ledgers and chart of accounts and just do all the fundamentals of accounting. And if you don't have that down, you're going to struggle to just jump right into strategic finance. So I had to put that work in, and I spent thousands and thousands of hours building models, doing the grunt work, to learn how it all came together. In fact, that's why I got my accounting degree in addition to my finance degree, like I'm more of a finance guy.

I love finance, but I got my accounting degree because I wanted to learn how the financial statements were compiled. In fact, a few months ago I was talking to one of my friends. He reached out he's younger, he's in his twenties and he's like Steve. I need your advice. I just finished my undergraduate degree in finance. I'm thinking about getting a degree in accounting, but I don't know. I want to get stuck in accounting, and what I said to him I was like you have to learn how the financial statements are compiled. Sure, you could have a successful career in finance, but when somebody gives you a financial report, like an income statement or a balance sheet or a statement of cash flows, and you have to analyze it and you have to build a forecast on it and you have to put in place KPIs, if you don't know where those numbers are coming from, that could be problematic. It could be limiting in your career. That's why I decided to go the accounting path and combine that with finance, so I knew how everything fit together. So that's what I'm saying.

With operating finance is like you have to know the fundamentals in order to be successful and effective with strategic finance. So if you haven't gone through my free financial pro program, this is a great opportunity for you to learn the fundamentals of both operating finance and strategic finance. At the very beginning of the program, I'm teaching you how to read financial statements, and then we move from operations into the strategic side of numbers, so be sure to check that out All right. So once you've mastered operating finance, then you can get into some really cool things which make up strategic finance, such as data-driven decision-making, which involves using financial metrics and analytics to inform strategic choices. The next thing you do is capital allocation, which is really important because organizations they have these resources, and if you can help companies make better decisions on how they allocate resources so they can invest in high value opportunities, you will be a powerhouse in your career. Or if you're running a business and you have cash, you will be a powerhouse in your career. Or if you're running a business and you have cash, you need to know where to put that cash in order to maximize your return on invested capital.

Profitability and cashflow management is also another aspect of strategic finance. Now, cashflow management sometimes falls under operating finance, like doing the basics, but I could tell you most organizations struggle with cashflow management. That's why, really, it becomes a strategic finance activity, because it requires a different view and a different skillset to manage cashflow and to calculate it and to learn how to deploy it effectively. Another aspect of strategic finance is business growth and valuation. So it's taking strategy, understanding the levers of growth right A profitable growth of sustainable growth and combining that with valuation, so you know what levers to pull in order to maximize firm value.

Performance management is another big part of strategic finance and this includes being able to look at a company's income statement, balance sheet and statement of cash flows and act with precision right. Precision is the key in order to improve performance very quickly. That's what we do at Coltivar we go into companies, we can look at their financial statements, we monitor their KPIs and we'll know exactly where to focus Versus. If you don't have this experience, you go into a business and you're all over the place. You're like, hey, let's focus on our mission, vision and values and let's strengthen our brand or you know, let's do this. We need to put in place a new training program for our employees, and you just start doing things that are like popular culture in business instead of focusing on the areas with the greatest upside.

Investor relations is a big part of strategic finance. Being able to communicate to investors, get them what they need, provide them confidence right In the business, communicate strategy, et cetera, is really critical. I did that a lot as a CFO. And then the last is really critical. I did that a lot as a CFO. And then the last part is just strategy playing a major part in strategy and being able to combine the financial side of the business with the strategy and then formulate a plan, a blueprint, to go execute. So, when you think about strategic finance, it's taking operating finance and it's elevating it in order to drive more firm value.

I can't tell you how many companies I work with where they leave so much money on the table and they say to me oh my gosh, steve, where were you five years ago, 10 years ago, et cetera. And so, as a business owner, I want you to hear this, because you don't have to stay stuck in this area. You may have a bookkeeper, you may have an accountant, you may have an accounting team, and they may be great, you may love them to death but they may not be focusing on strategic finance because they're so bogged down in the day-to-day transactional and compliance side of the business. But guess what? If you neglect these activities capital allocation, business growth and valuation, performance management, investor relations and strategy all the things I just talked about your business will stay stuck and, worst case, they'll start declining. That's why strategic finance is such an important topic that I'm just so passionate about.

And also you may be listening to this, wondering which path to take in your career. Like I said, if you can master operating finance and then you can move into strategic finance, oh my gosh, you'll be a powerhouse. But it's really hard to just skip over operating finance and just be like all right, I want to be strategic, I want to be a strategic financial leader, and it's like, yeah, but you don't even know how to do debits and credits, you don't know how to tick and tie a trial balance, right, so you have to know how all this stuff works so you could be highly effective in this area. Anyways, I just wanted to share with you what strategic finance is and compare and contrast that with operating finance, and hopefully I was able to pique your curiosity, because there's so much opportunity out there for both business owners and for people pursuing a career in this area.

All right, all the best. Feel free to reach out to me anytime you want. Connect with me on LinkedIn I'd love to hear your comments and just to connect, and you could always reach out at coldfirecom if you want to talk about how to transform your FinOps in your business into more of a strategic finance operation. All right, all the best, cheers.