AMB Performance Group Blog

Strategic Financial Planning for Business: What to Know

Posted on: March 15, 2021
Business Success

Planning is the key to achieving your goals in any space, and that’s just as true in the world of business as it is anywhere else. In business, though, understanding how strategic financial planning helps a business grow is as important as understanding how any planning should work.

What Is Strategic Financial Planning?

The process of financial planning just means a space where you can identify your company’s current financial situation and its future goals. The plan then creates a roadmap for growth, helping you know where you are and how you’re going to achieve those goals.

It’s important to note that financial plans are not budgets. While a financial plan can include a budget, it consists of many other things, too, like an itemized breakdown of assets, expected revenue, cash flow, and standard expenditures. The goal is to build a picture of a business’ health as a whole.

Three Reasons Your Business Needs a Strategic Financial Plan

Not sure your company needs planning like this? Think again. There are many reasons you may want to consider creating this plan. Here are three of the most important.

  1. Clarify Your Company Goals: This is the place most company executives begin their financial planning journey. Understanding what you want your company to achieve over the next quarter, the next year, the next five years, and so on helps you show that there really is a need for this company and that you’re actually filling that need. More than that, though, you’ll know what to expect things will look like when you’re really on track for success.
  2. Create Cash Flow Management Practices: It’s often challenging for companies to manage their cash flow well, but your financial plan can help you do just that, especially in the early days when you’re spending more than you make. Knowing what’s acceptable and what’s not will help you stay on track as you work through growing pains.
  3. Navigate Risk: The business world is always going to be a risky place, but with a strategic financial plan ready to go, you’re going to help make room for risk and avoid it whenever possible. Part of the planning process means setting up contingency options, so if your business begins to find itself in trouble, you’ll know what to do.

Strategic Financial Planning for Business: How To Move Forward

If you know you’re ready to build a plan, where do you even begin? It all starts with your vision and mission. Your vision statement is a fairly broad look at the company’s values and its purpose, as well as where it’s headed. This matters to your financial plan because, without it, you can’t really clarify why your company exists and what it truly stands for. Your mission is a bit different than your vision. It identifies who you’re marketing to, where those individuals are, what you’re offering, what profitability looks like for your companies, and what you hope your public image looks like.

From there, you’ll need to do a pretty careful analysis of both the company from the inside and what’s really possible to what’s happening outside of your company – identifying the opportunities and trends that are within your vertical currently. Some use the SWOT method for this step – strengths, weaknesses, opportunities, and threats – and that’s an excellent way to evaluate your company both inside and out.

Finally, it’s time to take a hard look at the financial data. You’ll need three key things to prepare this step – the balance sheet, cash flow projections, and your income statement.

  • Your balance sheet outlines all of your assets and liabilities as well as the equity you may hold in the business. Typically, you’ll have two kinds of assets, both current and fixed. Your current assets are usually made up of the amount of cash you have available to you as well as your outstanding invoices. Your fixed assets are the tangibles like your company’s equipment, real estate (if it has any), and similar items. Some companies also have intangible assets, but that’s not always true. That may include any intellectual property you currently hold.

Liabilities are separate from assets. They are the debts your company may owe. This may be things like invoices from vendors you have yet to pay, compensation owed to employees, and the like.

Equity is different still, as it’s a calculation of your company’s assets’ value after the liabilities are paid. It can include shares and stock options, too, but it’s pretty rare for a small business to have those.

  • Your cash flow projection isn’t like your balance sheet. Instead, it’s a forecast that looks at how much money you make and how much money you spend. Lenders often request cash flow projections because it’s an excellent way to tell whether your business can actually afford to repay a loan in the future. It’s important to remember that cash flow projections and cash flow statements just aren’t the same thing. A cash flow projection is designed to determine how much money is supposed to come out of a business during a specific future time period. A statement looks at what has actually happened.

As you build your cash flow projection, you’ll want to focus on revenue, disbursements, and reconciliation. Revenue just means how much you bring in month after month. Disbursements are the recurring expenses. Reconciliation is the revenue minus the disbursements.

  • The next step is to prepare an income statement. This is just an outline of your expenses, revenues, and profits for a given period of time, like the past year or the past quarter. Don’t forget to include the total amount you brought in, all of your expenses (including direct expenses and general/administrative expenses), your overall income,  and any taxes paid. Your net income will be the total income after you’ve deducted both expenses and taxes from the revenue coming into your business.

Let Us Help

Developing a plan is what matters to your company’s financial success. It’s an excellent way to look at what your key metrics will be going forward and how you can make things happen for your company. If you’re interested in developing and executing a strategic financial plan, actionable growth plan that is carefully tailored to meet your business’s needs, contact AMB Performance Group today.

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