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Steps to Nail Your Three Year Strategic Plan with Modern FP&A

October 17, 2022
Budgeting
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Individuals and businesses alike have endured extreme stress in recent years, and there’s no sign of the situation improving any time soon. Along with the continuing impact of the COVID pandemic, companies are currently dealing with the effects of Russia’s war on Ukraine, sky-high inflation, supply chain shortages, and rising interest rates, among other challenges. While you can’t control the state of the economy, there are steps you can take to ensure your business is prepared for what’s to come. As you start your financial planning for 2023 and beyond, follow these steps to solidify your three-year strategic plan and boost the odds of achieving your business’ goals.

  1. Set the past as your baseline to predict the future.

If you want to forecast your financial future, start by looking back at past performance. At minimum, companies should examine three years of data with a focus on sales, costs related to sales, historical depreciation, and taxes, among other factors. Avoid using data from too many years, as doing so could lead to decision paralysis. Once you’ve accumulated your information, you can build a base statement forecast and start making choices.

  1. Add assumptions on what could change in the future.

Referring to ideas we presume to be true, assumptions are a key part of the decision-making process. All business leaders make assumptions in order to develop strategies and plan for future circumstances. However, in today’s unstable economic circumstances, adhering too strongly to your preconceived notions can result in significant financial loss. If you want to put your business in the best position to succeed, it’s crucial to test beliefs and assumptions to see what’s likely to change moving forward. Then you can adjust your policies as needed.

  1. Add strategies and assumptions to visualize different outcomes.

Understanding the impact of your decisions is essential for future financial planning. If you want to nail your goals for the coming years, it’s important to consider the various outcomes that may result from your proposed strategies. Along with looking at best and worst case scenarios, companies should consider what’s most likely to occur. To that end, it’s essential to have a software program that lets you create multiple versions of your budget based on different financial models. Test the impact of proposed scenarios and gain immediate insight into how your assumptions may affect your finances.

  1. Assess your risk tolerance using cash flow forecasts for each scenario.

Not every company has the same tolerance for risk. Moreover, your cash flow likely varies from year to year and even quarter to quarter, making it necessary for you to adjust strategies. If you want to achieve your goals, it’s crucial to assess risk tolerance using cash flow forecasts for different scenarios. As a bonus, an accurate financial forecast can highlight current or future problems your company is likely to experience. For example, you may notice that cash flow is reduced during a particular time of year. Use these insights to make necessary changes to spending so cash flow remains strong even during periods of slow sales.

  1. Work with business leaders and board members to test strategies.

As a business leader, you don’t want to be making business decisions in a vacuum or without gaining insight from your trusted colleagues. To that end, savvy owners utilize software programs that allow for more collaborative workflows as part of their financial planning process. Doing this allows for communication and collaboration among budget administrators and other experts. Additionally, companies can test different strategies and ensure successful outcomes for every scenario.Financial planning comes with numerous challenges. Along with disconnected processes, many businesses are currently experiencing issues related to lack of business insights, budgeting inaccuracies, and labor shortages. While plenty of factors are outside your control, you can take steps to ensure you’re making decisions based on the most up-to-date, accurate information. A modern FP&A solution, Planning Maestro provides a superior way of budgeting, planning, forecasting, and reporting financial data. Not only does this software allow for easier collaboration among business leaders, but it also enables companies to test the impact of different scenarios before they act. The end result is that businesses can make decisions faster and with more confidence that they’re doing what’s right. Discover the benefits of financial automation with Centage.

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