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Strategic Financial Planning: Bridging the Gap From Here to There
Strategic Financial Planning: Bridging the Gap From Here to There
Just like planes are typically flown by a pilot and co-pilot, businesses are usually led by a CEO and CFO. The CEO sits in the driver’s seat and the CFO is in the passenger seat. The CEO sets the strategic priorities for the organization while the CFO makes sure that there is a plan and resources in place to support those business strategic priorities. In this article, we will cover three areas that will help improve your financial strategy: creating a strategic financial plan, tracking important KPIs, and forecasting cashflows.
1) Creating a Financial Plan
Before a plane takes off it has a flight plan. A flight plan consists of important details such as departure and arrival points, estimated time in route, alternate airports in case of bad weather, type of flight, number of people on board, etc. In a similar way, a good financial plan has data points that can be tracked such as revenue, number of employees, churn rates, product milestones, cash flow, and profitability.
Financial plans should also assume not everything will go exactly to plan. Occasionally the organization won’t get traction on an important initiative and will need to pivot. Improving your organization’s ability to assess risks will improve its ability to react and adapt as needed.
It is also important for the organization’s strategy to be integrated into the financial plan. This can be achieved by focusing on key initiatives that support your organization’s overall objectives. There are many “good” areas an organization can focus on, but success typically increases as energy is focused on key initiatives.
2) Tracking Key Performance Indicators (KPIs)
After a financial plan is created it is important to track progress. This is first accomplished by defining the key performance indicators (KPIs) within your organization. After KPIs within the financial function have been identified, it is important to determine how frequently your organization will look at each number (ex: daily, weekly, monthly, or quarterly). The budget vs actual process can be used as a report card for the organization and help your team better understand if you are executing your financial plan or if adjustments or corrections are needed. In the words of Peter Drucker, widely known as one of the fathers of modern business management, “If you can’t measure it, you can’t improve it.”
3) Creating a 13-week cash forecast
A plane can have a perfect flight plan, pilot, and co-pilot. However, without fuel, a plane can’t reach its intended destination. In a similar way an organization can have a great plan and leadership in place, but without appropriate capital will have a difficult time reaching its destination. A successful financial strategy will ensure the organization has appropriate capital to support its objectives. This can be achieved by creating a cash forecast. Cash forecasts should consider cash inflows and outflows. It is important to remember that “cash flow” is not the same thing as “profitability”. Cash inflows can include customer payments, investments received, and loan proceeds. Cash outflows can include the paydown of debt, investment into inventory, and owner distributions. Understanding the timing of large cash flow items will help ensure that your organization has time to ensure it has adequate cash versus reacting last minute when the account balances get low.
How Ampleo Can Help
Strong strategic financial planning can drastically improve your business’s odds of success. An experienced CFO will lay the groundwork to help your business execute its strategic objectives. At Ampleo we help businesses create strong financial plans, establish KPIs, and track cash flows to support their business’s objectives. We believe that financial strategy is key to executing The Five Elements of Financial Success.
Jon oversees our finance practice. He’s worked as a part-time CFO inside multiple fast-growing companies and has 10+ years of finance leadership across SaaS, banking, restaurants, healthcare, and e-commerce. He also teaches Financial Modeling at the University of Utah.
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