Financial Planning and Analysis That Works in the 21st Century

In all honesty, forecasting, budgeting and planning are lost arts for a lot of companies and in particular for small businesses, since their budgets are significantly less than larger companies. Whether the organization is doing $100MM or $500K, this is a critical exercise that needs to be taken seriously. At the onset of this financial planning, it is key to establish the principal drivers of the organization and where they are being tracked:

  • Where are the leads being tracked?
  • Are the sales being logged in the same system? Is it tracked in a Customer Relationship Management program or not?
  • Where are the expenses being tracked and how?

Too often the next part of such a  review is where financial planning practices tend to be outdated. A review of all of the platforms needs to be done. There was a time where good CRM and financial systems could only be found on expensive legacy platforms, but that is no longer the case.

  • What accounting system is being used and how much data is being stored in the system?
  • How much data is being tracked in the CRM?

You’ll need this information in order to establish assumptions for your forecast: Conversion rates, growth rates, total sales etc.  Also, is there an expense tracking tool being used?  How are marketing and advertising being followed, etc.? Another important component to consider is how to structure the forecast and upon what assumptions are you basing it.  It is imperative to review the financial run rates and analytics for all sales and expenses. Next, one must establish the fundamentals for acquiring new business.  These can include customer acquisition costs, close ratios, lead requirements to gain the new business, etc. With new hires, it is necessary to consider what are the headcount assumptions that need to be implemented and other expenses associated with hiring.  It is a good idea to keep the assumptions the assumptions in one area so that the drivers of the model will be easily accessible and driven as the assumptions change in the organization.

After establishing key data points and where to find them, this next step is where financial planning moves from the way it operated in the 1980’s into the 21st Century.  Too often, we fall in love with Excel and rely on it too heavily for our financial models. This is normally fine for simpler models, but if you want to manage more data,  you’ll need a better system as you grow.  Seriously consider moving away from Excel and implementing financial modeling tools that can allow for accessibility anywhere via a cloud service.  This significant change is wise because it will also allow for better control of information, which an organization needs as it increases in size.

The snag that delays financial modeling too often in such a time of rapid company growth is a lack of integration within the corporation’s other tracking platforms.  In these technologically advanced times, this really should not be the case, since Application Programming Interfaces (APIs) or codes are available across all of the popular financial platforms. Carefully study the APIs and realize that their main purpose is to allow applications to communicate with one another.

Contrary to popular belief, a budget is not the best way to operate your business.  That does not mean you don’t want to create one, but normally a budget becomes obsolete within the first 3-5 months of an operation, because things are always changing within the corporate structure. That’s why the best practice to utilize is a rolling 12-month forecast. By using this methodology, one can now measure a forecast within your budget.  But also, you can compare a forecast created in June with a forecast you may have created in March.

This will allow the opportunity to ensure that the assumptions in your model are accurate and if not why are they not accurate? No forecast or budget is perfect, but the goal of financial planning and analysis isn’t just to provide targets, or show success or failure. Good financial planning should also be able to answer the questions of “why” we are up on the year or down and where and when did matters begin to go rightly or wrongly.


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