Financial Planning in Business
Financial planning in business is necessary to forecast future revenues, determine how best to use resources, and support the company’s short- and long-range objectives. Well-prepared projections help reassure lenders and investors, too.
Traditional financial planning relied on many spreadsheets, but this approach needs to be more agile and accurate for today’s business. Planful offers a continuous planning platform elevating the financial conversation and aligning finance with the organization for connected planning.
Forecasting Future Revenues
When businesses make a concerted effort to be more efficient in financial management, they are more likely to grow their revenues at an accelerated pace. Efficient financial planning allows more funds to be dedicated to marketing and expansion efforts rather than dwindling on the current liability side of the ledger.
Revenue forecasting is a fundamental aspect of the business financial planning process. Creating revenue forecasts entails calculating sales based on current contracts, new opportunities, and other factors impacting future performance. The resulting sales forecasts are typically connected to the profit and loss statement in a business’s accounting system.
Creating accurate forecasts of future expenses is also essential for effective financial planning. When predicting expenses, consider things like fixed costs, overhead, and variable costs that may rise or fall based on the new revenue you bring in. Also, remember to factor in the impact of other expenses, such as insurance and taxes.
Budgeting
A budget calculates income and expenses, generally compiled and re-evaluated regularly. A budget can be used by individuals, families, groups of friends, or any organization that uses money. Businesses create budgets to help them determine whether they have enough revenue to cover costs and monitor the impact of business decisions on their finances.
Companies can set budgets for fixed and variable costs, one-time fees, and unexpected events using accurate numbers. They can then plan for growth by increasing their marketing efforts, expanding operations, and investing in new products to generate additional revenue.
Efficient planning and forecasting are critical to a company’s financial success. A comprehensive process demonstrates a solid commitment to sound business practices and increases the likelihood of outside investment. The right technology can help streamline and automate the planning and forecasting processes to make them faster, more agile, and more accurate.
Cash Flow Management
We’ve all heard the saying, “Cash is king.” It may be accurate, but you can still pay attention to your company’s cash flow.
A business needs to have enough cash to cover its operating costs and expenses and allow for growth. A healthy company has positive cash flow, translating to more money coming in than going out.
To improve cash flow, a business can reduce its operating costs by reducing overhead, such as lowering employee salaries and eliminating unnecessary office supplies and subscriptions. It can also speed up the cash cycle by encouraging customers to make larger down payments and offering discounts for early payments.
It can also manage its inventories by reducing the number of goods on hand, reducing storage and insurance costs. Lastly, it can plan for slow periods by having sufficient cash reserves to weather challenging economic times.
Monitoring
Financial planning is a vital tool for business growth. The process helps companies monitor their financial performance using a core trio of statements: cash flow, balance sheets, and income (also known as profit and loss) statements. In doing so, businesses can identify new opportunities and develop efficient financial controls to manage costs.
The best financial planners also help businesses improve their long-term visibility into fund allocation. This allows them to make more informed decisions about how to spend money on things like marketing, product development, and personnel.
In the past, financial planning was a manual process that was often conducted on a quarterly or yearly basis. It was done on many spreadsheets that were risky to use due to the complexity and inaccuracy of the data. Today, finance teams need agile financial planning processes that leverage the power of technology. Software that integrates with other systems delivers a single source of truth and enables more comprehensive, what-if analysis to achieve the company’s financial goals.