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How to Develop a Strategic Financial Plan for Your Business

It is difficult to accomplish goals without a plan. Think of the last time you wanted to lose 10 pounds. You likely planned out your meals, picked which days you would go to the gym, and got yourself into bed early, so you were rested each day. All of this encompasses a plan; without one, you likely wouldn’t have been able to achieve your goal.

Just like you, your business also needs a plan. Strategic financial planning is required for any company to be successful. It’s a roadmap to understand what direction your business is heading and why. It can also help you plan for some of life’s unexpected happenings, like a recession.

Read More: Why You Need Financial Scenario Planning for “What Ifs”

Financial planning strategies for your business can help you determine where to spend money, time, and other resources. It should include specific goals to help you reach your dream. To help identify each unique point within the strategy, you should utilize various tools such as forecasting, budgeting, cash flow analysis, and key performance indicators. Let’s break down exactly what should and should not be included.

What Valuable Questions Should I Consider First?

First, let’s start by answering some common questions that can help guide your direction:

  • What are the goals of ownership? Do they want to sell the company in 3-5 years or hold and operate for 20 years?
  • What are the key metrics that drive profitability to the business?
  • What are the key metrics that drive value to the business?
  • Do they understand the profit margins of the business in total and by revenue stream?
  • What is the cash conversion cycle of the business? (How long it takes for cash outflows to turn into cash inflows, i.e., cash paid for product to cash received from the sale of product.)

It’s essential to take the time and consider the answer to each of these questions. These responses can give you a clue as to where to begin in the process. To help guide you on the strategic and financial planning process, we have broken down tangible steps to help get you there.

    1. Figure out where you are: Use your resources to conduct internal and external audits to help better understand the marketplace. Are you at the top of your industry or floating somewhere in the middle? Maybe you are at the bottom, and that is ok too, so long as you know where your business stands currently. This process can help you reach the next step. Have a clear understanding of what you are great at and what your competitors are doing too.
    2. Focus on what’s important: What is it about the business that will get you to the next rung on the ladder? What do your customers come to you for and praise you for doing? What is your company’s mission? Once you identify these main points, you will understand what your team and financial business plan should ultimately be focusing on right now.
    3. Define your objectives: Now that you know what you should be focusing on, also consider areas that your company has been “distracted.” What teams or committees are taking away from the main objectives? Zero in your attention on what is most important and focus all your efforts there.
    4. Put people in charge: How many times has a project fell through because no one was championing it? Use your team to your advantage and make people accountable for their projects that focus on your company’s objectives. Accountability is a true key to success in your company reaching its goals.
    5. Circle back: This plan, if done correctly, will work for now, but not forever. It is vital to set up a timeline to check back in with your team on their projects to ensure your company is hitting its goals and objectives. Maybe a quarterly check-in is what is best for your business or, perhaps, it’s yearly. Whatever cadence you set up is based on your companies needs; just don’t forget to review the strategic plan every so often.

Once a financial plan development has been made for your company, an annual budget should be created. When creating a budget, it is important to look at the income statement, but also the flow of activity driving the balance sheet, and then ultimately the timing and flows of cash.

Read More: Top Questions to Ask Before Building Your Business Budget

For many of our clients, in addition to the budget, we use a rolling forecast model, which is updated monthly based on the most recent company information available. This allows us to have clear visibility into our clients’ cash position for a minimum of 90 days in advance at all times. This way, we can help ensure there is appropriate cash and business planning can be made proactively in advance.

Key Performance Indicators (KPIs) can then be developed to focus on driving profitability, value, or both to the company. Examples of KPIs may include tracking the average days outstanding in Accounts Receivable in which continued improvement over time will increase cash flows of the business. Another simple KPI to track would be gross margin by product or service line. By knowing this information, the management of the company can make decisions to improve these metrics over time.

KPIs should be included as part of an ongoing scorecard and reporting package (monthly at a minimum) that management reviews. Management must develop KPIs that can be translated into actionable insight and ultimately to action. An action plan should be established at each meeting based on the movement in the KPIs, continuously focused on improving the KPIs over time. The action items should then be reviewed at the next meeting for progress, at which time new action items are then created.

In short, know your goals, develop a plan, budget, and forecast out your plan, develop trackable metrics, and then execute on your plan. Want to break down the process even more? Read our blog on planning a strategic budget that sticks.

We Can Help

Contact us to see how Signature Analytics can assist in identifying your goals, developing a plan, and developing metrics to execute your plan. Our talented, experienced accountants and financial analysts can complement your existing accounting employees, or act as your entire accounting department (CFO to staff accountant).

We provide the ongoing accounting support and financial analysis necessary to more effectively run your company, analyze operations, and guide business decisions to help you grow.

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