Creating the Financial Map to Achieve Strategic Goals

The Financial Planning Process

By:
Edgar Rodriguez
Executive Consultant
PlusPoint Consulting

Our last post focused on the first step in your planning process – establishing your organization’s strategic goals and objectives. Once you’ve done so, the next step is to measure where you are in relation to your goals to develop plans to get to where you want to be. I liken it to the Uber analogy – to get you where you want to go, the driver needs to know where to pick you up, and then they need to understand how to navigate from one point to another. Your financial plan becomes a map of navigation from where you are to achieving your strategic goals.

An important example and the place many plans start is your sales target. What will it take to grow sales by your growth target? Does achieving your goal require expanding into new geographic markets,  increasing prices, changing product mix, targeting a new customer segment, or adding new products? Each of these decisions requires evaluating the plans for other areas of your operations and ensuring those plans align. For example, new geographic markets might cause you to consider hiring local salespeople, assessing logistics plans to get products to market, and evaluating duty and tax implications.

Conversely, in the face of concerns about sustained economic headwinds, some companies may consider cost and even staff reductions. Understanding the potential impact on other parts of your operations is critical. For example, how does a reduction in marketing cost impact your ability to achieve your sales goal?

The importance is to ensure that all parts of your organization are aligned to achieve your stated objectives.

Creating the Plan

Armed with your plans for achieving your goals and objectives,  you can begin translating them into a budget, the output of which is a set of financial statements. The financial statements provide a big-picture view of the expected outcome of the decisions made during the planning process. They tell the story of your business plans through the numbers.

At PlusPoint, we build budgets from the bottom up using standardized planning templates and methodologies. For example, we utilize a template for planning staffing based on existing headcount and expected new hires. We also develop trended templates for the cost of sales and operating expenses. These trends help build an understanding of historical spending and provide a basis for projecting and analyzing projected spending.

These tools allow leaders to adjust assumptions and understand the impact of changing assumptions on the big picture – the financial statements. The initial budget allows management to ask crucial questions such as  “Does this make sense?”, “Are we achieving the results we expect, and if not, what changes do we need to make to deliver the results?”.  Industry benchmarks are also helpful in analyzing results and understanding how your performance compares to similar companies.

Keep the Plan Alive

Once the plan is finalized,  the challenge of executing the plan to achieve the goals and objectives begins. It is essential to remember that planning is not a one-and-done exercise. Financial plans are living documents that need to be maintained, and measuring actual results against your plan is critical. Things seldom go as planned. Early recognition of when results are not on plan and adjusting assumptions based on new information is essential to success. We will talk more about measuring results and keeping you plan alive in our next post.