PhD in Philological Science, associate professor Aliseienko O.N., PhD in Technical Science, associate professor Kotlova L.M., Chepynoga K.G.

Dnipropetrovsk National University named after O. Honchar

COMPANY FINANCIAL STRATEGY DEVELOPMENT

WITHIN ITS LIFE CYCLE

The conditions of uncertainty, which are the characteristic feature of today’s economic relations, are making contemporary businesses develop their strategy. The conditions of this kind are characterized by the high level of competition and risks.

The definition of the strategy, its functional advantages and main principals of its creation has deep historical background and is connected, uppermost, with the development of military strategy. Thus, the first authors of the treatises about the strategy were the Chinese philosopher Sun Tzu and the German military writer Carl von Clausewitz. According to the researchers, strategy is a general plan of actions according to which the goal is likely to be achieved.

Nowadays there are plenty of scientific papers that explore the essence of the company’s general and financial strategy as the part of its overall development plan. The authors of these papers are both national and Russian researchers of financial management. Blank I.O., Stoyanova E.S., Kovalenko O.L., Remenieva L.M., Podderegin A.M., Ansoff I. are among them as well as the international scientists, notably H. Mintzberg, R. Ackoff, D. Kliland, P. Druker, etc.

The scientists offered the most appropriate definition of the financial strategy. It is considered to be a perspective tool of the company’s finance activity administration, goal-oriented in terms of its overall development under the conditions of permanent macroeconomic indexes change together with the system of market processes state regulation, economic situation on the financial market and related to these processes uncertainty.

While developing the company’s financial strategy, the understanding of its importance as the core component of an overall corporate strategy is vital. In its turn, the corporate strategy presupposes the realization of company’s mission and consists of the sum total of functional strategies the quantity of which depends on the functioning peculiarities of each particular enterprise. Financial management theorist Blank I.O. is the founder of this theory.

The fact that the essence of finance strategy depends on both external and internal factors should necessarily be taken into account. Thus, external factors include the following macroeconomic indexes: branch and market segment where the company is, market economic situation, legislation, taxation policy, exchange rate policy, the volume of company economic cooperation with foreign partners and clients, etc. The internal factors include the enterprise’s patterns of ownership, its financial position, the structure of equity and loan capital, enterprise life cycle stage and other characteristics of its activity.

Taking into account the fact that each company develops and functions under the influence of micro and macro indexes, it is essential to elaborate a flexible strategy, efficient for a particular company, which belongs to a particular branch. The scientists in the field of financial strategic management in the network of their research are trying to create particular classifications of external and internal factors which create the necessity to develop the financial strategies.

In accordance with the classification proposed by Kovalenko O.L. and Remenieva L.M., there are three types of financial strategy, i.e. the strategy to overcome the unstable financial system of an enterprise, the strategy to support the financial stability of the enterprise or stabilization of an enterprise and the strategy of steady growth. The classification proposed by Blank I.O. outlines the following strategies: the strategy of enterprise financial resources formation, investment strategy, the strategy which guarantees financial accountability and stability for the enterprise and the strategy of financial activity administration.

Ukrainian economist and researcher in the field of risk management Tereshenko O.O. has proposed four types of strategies directed to combat the financial crises at an enterprise, i.e. active strategy, the strategy of delegating authorities, the strategy of compromises and consensuses and the defensive strategy. All strategies listed are realized under conditions of deep financial instability and presuppose the transformation of a company structure. Moreover, while realizing each strategy, the developed algorithm of actions must be flexible to the external market conditions and have to be based on the results of the preliminary carried out analysis of the finance state of an enterprise.

The listed financial strategies can be grouped within the company life cycle in the proper succession.

Ill. 2 Stages of an enterprise life cycle

Thus, the given graph shows four stages of the enterprise development and its functioning on the market. As shown, the fourth stage is not the last one. The consecutive fifth position is the result of not only the production output decline but also the other negative tendencies, which can be observed at an enterprise. Accordingly, stage V represents the recession (financial and manufacturing). The next step after the recession is the recovery of an enterprise (stage II*). It is worth paying attention to the fact that if the wrong strategy is realized at the fifth stage, there exists high possibility that the company will not move through the life cycle stages to the next position of recovery and the only possible result would be the bankruptcy of an enterprise.

In that way, with a view to organizing the enterprise stage by stage gradual development various financial strategies are to be implemented in the company. These strategies must be realized in a strict succession and should coincide with life cycle stages of an enterprise.

On the stage of the company’s entering the market, the main thing is to form clients’ data base with a view to receiving profit from sales in future. It is also important to build up effective partner relationship. Therefore, it should be mentioned that the majority of the enterprises business plans are supposed to achieve a breakeven point at the first stages of its activity. The essence of this index lays in the idea that enterprise initial production and sales costs should be equal to the received profit after covering all the compulsory payments. Thus, according to the classification of Blank I.O., the most appropriate strategy that should be implemented at the first stage of the enterprise life cycle is the strategy of enterprise resources formation. It means that upon setting up of a new enterprise and from its startup until the more or less counterbalance of this system, the definitive period of time should pass. For that time being, the enterprise has to form the necessary resources both financial and manufacturing to make further business activity profitable. Considering these theories the most representative is the breakeven point calculation. It shows the volume of output to be manufactured at an enterprise to cover the previous costs.

It is reasonable to conclude that at the first stage of the life cycle upon realization the financial strategy of the financial resources formation, the enterprise will not achieve the breakeven point and its expenses will be higher than the profit received.

According to the classification proposed by Kovalenko O.L. and Remenieva L.M., within the second stage of an enterprise life cycle, the financial strategy of growth or the strategy of steady development should be implemented. In accordance with Blank’s theory, the most appropriate strategy at this stage is the financial activity administration strategy. Unification of these two strategies stipulates the enterprise financial activity administration with a view to achieving and keeping financial stability of an enterprise. Such a strategy stipulates dramatic realization of manufacturing policy, making the enterprise assets liquid and the efficient use of loan and equity capital, etc. As a result, the company receives an opportunity to increase its economic output and invest a part of the profit received in new business activity. Having implemented the strategies proposed, the costs will be totally covered by the profit received.

At the third stage of an enterprise life cycle in accordance with both classifications the financial investment strategy should be implemented. At this stage the company’s revenue exceeds its expenditures. It is also assumed that the margin will be good enough to finance production both intensively and extensively as well as to perform investment activity.

The activity of this kind assumes an implementation of the real investment policy, financial investments, enterprise investment policy into branch and regional reserves. But, according to the research done by Blank I.O., due to the investment activity, the company gets an opportunity to raise its gains as well as to increase its market price. On the other hand, the company acquires definite risk portfolio. That is why together with the investment strategy, the strategy of the financial accountability and stability that contemplates current assets management, management of the structure of capital and the implementation of the financial risks management policy are to be realized.

The forth stage of company development life cycle is characterized by the production decrease. The enterprise appears in the situation when it had been impossible to foresee some external factors in the process of realization and development of the afore mentioned financial strategy. That is why according to the research done by Kovalenko O.L. and Remenieva L.M., the financial strategy directed to the overcoming of the unstable financial system should be implemented. Under the given strategy, the enterprise receives funds from the external economic subjects to be able to settle debts with the other subjects of the market. But the financial situation of this kind is very complicated for the company because it loses its solvency and acquires an additional risk portfolio. While redeeming, the company is unable to attract funds to manufacturing process and, as a result, the enterprise faces the deep financial crisis.

The fifth stage of an enterprise life cycle is characterized by the crisis that is why the strategy proposed by Tereshenko O.O. is to be implemented. As emphasized, these strategies are gradual strategy, strategy of authority delegation, the one on compromises and consensuses and defensive strategy. If being at this stage, the enterprise chooses the wrong strategy, its financial situation is falling dramatically and the only possible variant is to initiate the liquidation process. If the management of an enterprise chooses and realizes a better financial strategy, the company enters the next stage of its recovery and keeps on functioning on the market of goods or services.

Thus, the financial strategy should thoroughly coincide with the stages of the company life cycle. It should look like an algorithm of actions which, in its turn, should take into account the possibility of the external market factors appearance, foresee the possible influence of these factors on the financial activity of the company and possible risks. That is why one of the most important characteristics of the financial strategy is its flexibility to the external market. The key issue is to identify the factors that characterize the productivity of financial strategies implementation depending on the company market segment and its overall activity.

Literature:

1. Бланк, И.А. Финансовая стратегия предприятия [Текст]: учебник/ И.А. Бланк. – Киев: Ника-Центр. – 2004. – 540 с.

2. Гавриленко Т. В. Механізм розробки та реалізації стратегії в системі стратегічного управління [Текст] / Т. В. Гавриленко // Вісник Київського національного університету технології та дизайну (КНУТД) : Збірник наукових праць. - 2006. - № 2. - С. 155-158

3. Гаращенко Н. М. Стратегічна платформа підприємства [Текст] / Н.М. Гаращенко // Стратегія економічного розвитку України: Науковий збірник. - К., 2008. - Вип.2-3. - С. 123-131

4. Коваленко, Л.О. Фінансовий менеджмент [Текст]: навчальний посібник / Л.О. Коваленко, Л.М. Ременьова. – Київ: Знання. – 2008. – 483 с.

5. Поддєрьогін, А. М. Фінанси підприємств [Текст]: підручник/ Керівник авт. кол. і наук. ред. проф. А. М. Поддєрьогін. 3-тє вид., перероб. та доп. — К.: КНЕУ. - 2005. — 535 с.

6. Стоянова, Е.С. Финансовый менеджмент [Текст]: учебник/ под ред. проф.. Е.С. Стояновой. 5-е изд., пере раб. и доп.- М.: Перспектива. – 2006. – 656 с.

7. Терещенко О.О. Антикризове управління підприємством [Текст] / О.О. Терещенко// Фінанси України. – 2007. - №12. – С. 56-63

8. Mintzberg H. Strategy Safari: a guided tour through the wilds of strategic management: [Text] / Henry Minzberg, Bruce Ahlstrand, Joseph Lampel. – New York: The free press. – 2000