Financial & Strategic Planning: Essential Guide

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April 23, 2024

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What is Financial Planning?

Simply put, financial planning is analyzing your current business financials and projections for growth and then putting in implementations to aid your company meet its goals through this. Financial planning also involves strategic financial management, which encompasses decisions about when are expenses recognized. This focuses on long-term fund management, taking into account the strategic perspective. By considering the timing of expenses, businesses can better align their financial strategies with their long-term objectives and ensure sustainable growth.

What is Strategic Planning?

In the simplest terms, strategic planning is a systematic process used by organizations to set short, mid, and long-term goals and also determine the best way to achieve them. Strategic planning helps your business create a roadmap for which strategic objectives you should prioritize and which ones to put off for later.

Role of Financial Planning in Strategic Planning

Financial planning supports an organization's strategic plan by allocating resources, forecasting future financial performance, managing risks, and ensuring the goals are financially achievable. It aligns financial priorities with long-term objectives.

What Comprises a Great Financial Plan?

A successful financial plan, whether for a startup or an established enterprise seeking to expand, involves a couple of vital elements. These include:

Profit and Loss Statement

This is essentially an explanation of how your business made profits or incurred losses over a given period (often 3 months). To accurately come up with a profit and loss statement, you will need to determine your revenue/sales, the cost of goods sold (COGS), and the operating expenses. A robust purchasing software that automates purchase orders and purchase requisitions comes in handy for this.

Cash Flow Statement

This is just as important for your business as a profit and loss statement. It gives you an understanding of how much cash your business has made, where the cash is coming from, where it is going, and on what schedule. Once you establish this, you can then run a healthy business. A cash flow statement is usually prepared every month.

Balance Sheets

A balance sheet displays the financial position of your business at a particular time. This includes your assets, liabilities, and equities.

Sales Forecast

These are projections of how much you think your business will sell within a given duration. Your financial plan requires a sales forecast to be successful, especially if your business involves lenders or investors. However, there isn’t a one-size-fits-all sales forecast since every business has different needs. Find one that is tailored for your specific business needs and utilize it in your financial plans.

Personnel Plan

This is sort of a staff audit that determines the importance and necessity of each team member within your business. If you run a small business where you are a sole proprietor with no employees then this is not important. In the personnel plan, you should budget and prioritize the various departments. Determine which departments need some money allocated and which ones need budget cuts.

What's the Difference Between Purchase Requisition and Purchase Order?

In the buying process, purchase requisitions and purchase orders are steps that help businesses communicate what they need and how they plan to pay for it. A purchase requisition is an internal request. It's when someone within the company asks for the green light to buy something needed, detailing what, why, and sometimes where to buy it from. It's about getting approval before making a purchase.

A purchase order, on the other hand, is an external document sent to a vendor. It confirms the business wants to buy something, detailing the items, amounts, prices, and delivery info. It's a formal agreement to buy, laying out the terms of the purchase.

What Comprises a Good Strategic Plan?

A strategic plan sets the direction of your business and outlines what needs to be done to enable you to achieve these goals. A great strategic plan shows where your business is now, where you want your company to be in the next couple of years, how you will achieve this, and how you will measure success and determine if you are on the right course to achieving these goals.

Another essential part of strategic planning is considering future-focused financial solutions that offer both growth and long-term security. For example, strategies like max funded indexed universal life insurance (IUL) can help individuals and entrepreneurs plan your financial future with features such as tax-advantaged growth, higher potential returns linked to indices, and enhanced legacy benefits. Integrating advanced planning tools can supplement standard business approaches for more comprehensive financial stability.

The strategic plan will involve setting goals that are S.M.A.R.T (specific, measurable, attainable, realistic, time-bound), which is a more traditional goal-setting approach. A relatively novel approach to setting goals is using the acronym F.A.S.T which represents frequent, ambitious, specific, and transparent goals.

Importance of Financial and Strategic Planning

Financial and Strategic planning plays an integral role in your business. A shocking statistic is that 86% of executive teams spend less than one hour per month discussing strategy while 95% of a typical workforce doesn't understand its organization's strategy. When you properly utilize these tools, you get an edge over the competition.

Through financial and strategic planning, your firm can align resources for optimal results. This allows you to prioritize financial needs and build a competitive advantage over several businesses that lack in these regards. Utilizing these powerful tools will focus your efforts and ensure that everyone in your company is working towards a common goal.

Getting Financial and Strategic Planning in Your Company

Financial and strategic planning are the backbone of every successful business, especially those that are hardware-centric and procurement-heavy. Many startups rely heavily on procurement to keep their supply chains moving, but without proper financial and strategic planning, they risk making poor financial decisions that can quickly lead to the closure of their businesses.

ControlHub is an all-in-one solution that can help automate some of the functions involved in financial and strategic planning, giving startups breathing room and allowing them to focus on their core businesses without compromising quality. With ControlHub, startups have access to all data and analytics, enabling them to make more informed decisions. By tracking their current position and comparing it to where they would like to be, startups can take necessary actions and make the necessary adjustments as needed.