Understanding the Business Financial Planning and Analysis Process

Having a wider grasp of business financial planning proved to be an indispensable exercise business owners practice nowadays, as it offers in-depth info about an SME’s overall financial health.

The Organisation for Economic Co-operation and Development (OECD) reported that Canada’s economic performance is forecasted to bounce back strongly with a 6.1% growth in 2021 and 3.8% in 2022. Due to lighter restrictions and vaccination efforts, SMEs are now buoyant in the face of post-pandemic recovery. 

As a business owner, this brings a shimmer of hope to your bottomline. Improving your financial initiatives develops your financial resilience and allows better allocation of funds for more important undertakings. How is this done? 

Through financial planning for businesses.

With so many concepts surrounding business finances, it’s hard to have a grasp on what financial planning is, and how it’s different from other terms such as forecasting, financial reporting, and alike buzz terms. Let’s start by giving a clear definition of the term.

What is financial planning and analysis (FP&A)? 

Financial planning and analysis is a forward-looking responsibility that focuses on budgeting and forecasting processes that props up the financial health and strategy of an organization. 

According to Gartner, FP&A entails 4 approaches: 

1. Planning and budgeting, 
2. Integrated financial planning, 
3. Management and performance reporting, and 
4. Forecasting and modelling. 

A finance department’s capability is stretched further when its FP&A solutions are founded in the corporate strategy. 

FP&A professionals are tasked with the collection, preparation, and analysis of financial data all across the business. From there, they formulate the necessary reports containing intensive insights that support your current situation.

Read Next: The Role of Financial Reporting in Corporate Transparency

When you understand how your previous financial standing came about and how it correlates to your position today, developing accurate cash flow forecasts follows through easier. This way, even in inevitable circumstances, you’re sure you can weather it strongly through your robust financial plan. 

So how can business owners keep tabs on their business finances? Here’s a quick rundown on the steps on how to make a financial plan for your growing business.

• Setting goals 

What does your business want to achieve? Setting goals can help you understand the bigger picture and identify your business targets. Ideally, it is better to set specific goals as it is easier to determine the success of these targets later on. Using various finance and accounting (F&A) tools such as financial statements and invoices can significantly help you in the goal-setting process.

• Gathering financial data 

As soon as you have set your ideal targets, you can now move forward with the actual financial data that you have at hand. How much is your business earning every quarter? How much is your business spending on utilities and business operations? Determining these costs will make it easier for you to draft a business financial plan.

• Analyzing existing data 

With the most pertinent financial data at hand, the next step is to interpret these data. Look at the numbers and the figures and try to map out how you can fill the gaps if any. Through this stage, you will have a way of knowing if there is a possible imbalance between your cash inflows and inflows for the next quarter. 

• Developing strategy 

Based on the figures you have interpreted, you can foresee imminent problems in your cash flow. What can you do to improve your business's financial position? By developing strategies, you can keep your finances from going astray. Some of the more common strategies include an increase in your current investments, bank financing, or cutting down on business operational costs.

• Implementing the plan 

Consider your options before giving it a final go. There are many consequences to be considered as you choose different strategies. Make sure you thoroughly understand the pros and cons of each strategy before leaping right into it.

• Evaluating the results 

Give your initial business financial plan several months to see how it is faring. Check your cash inflows against your outflows to make sure you are getting the ideal numbers. You can opt to change certain aspects of your business financial plan as you deem fit.

Importance of financial planning for SMEs 

FP&A is more than having a positive cash flow in your balance sheets. It requires certain skills such as proficiency in utilizing cloud accounting platforms and promising analytical skills to extract comprehensive financial data to be used by the management in making long-term decisions for the company. 

When you create a financial plan to organize your funds better, you can expect that your revenue will grow at a more accelerated pace than most firms. A well-structured financial plan shows how you can allocate your resources better so you can achieve maximum efficiency in your operations. Managing costs would also be a piece of cake since you know your financial capability for the near-term and long-term. 

Financial planning for your business stands as a roadmap to foster good financial growth, that even in the face of adversities, your business remains on track and aligned with the corporate strategy.  With a thorough understanding of various finance and accounting concepts, you build a financial model that augments and helps in the fulfillment of your company goals.

This post was first published 6 July 2015  and edited 3 September 2021.
Edited by: Maria Katrina dela Cruz