11 Best Practices In Financial Planning & Analysis For Businessmen

Financial Planning & Analysis For Businessmen

Financial planning and analysis (FP&A) are the core of every business’s financial well-being. There are four critical practices in financial planning and analysis: budgeting, financial planning, reporting, and forecasting. However, there are differences in executing FP&A and doing so in the best manner.

Effective financial planning and analysis can help manage finances and improve the business. But on the other hand, ineffective planning can do the opposite. This article outlines the best FP&A practices so readers can draft and execute an effective financial plan and analysis.

1. Organizing Financial Data

A fundamental principle of financial planning is to have all data gathered centrally. This may be a simple principle that should have been ignored by some. However, many businesses proceed with their financial planning without proper compilation of data. Therefore, it becomes vital to keep this practice at the top.

The absence of data compilation before planning causes the flawed implementation of strategies. Additionally, such plans cause more harm than good. Companies are unaware of any reserves that can be beneficial or ignore any pending payments or debts.

Before initiating an FP&A process, gathering all financial information in one place is vital. This information includes all financial transactions for the previous fiscal year. Some essential reports include available financial resources, debts, interest rates, and all expenses.

Having all data in place allows experts to plan their policies better to solve problems, devise a financial plan, and mitigate risks.

The best way to organize and keep data at your fingertips is by having financial planning and analysis software. Such software compiles all data in a centralized interface and updates information periodically. As a result, they skip the hassle of maintaining spreadsheets and organize data in relevant categories.

2. Having Clear Financial Goals

Financial goals and objectives keep varying. For instance, a business may aim to increase its sales by 10% within the next six months. However, their goals may change the following financial year, and they might decide to improve their customer service next.

Clear financial goals and objectives help outline operational, financial planning, and analysis processes. As a result, enterprises can plan and allocate their financial resources for their desired outcomes.

For example, a business that wants to cut operational costs will first analyze where its finances are currently invested. This information helps them determine the areas that can perform optimally with reduced costs. Later, they allocate finances according to their inference and analyze progress.

3. Remembering the Risks

Businesses are constantly exposed to unforeseen circumstances. Changing international prices, policies, and regulations impact business operations. These fluctuations directly impact the financial aspects of companies. Especially in manufacturing industries, external factors significantly affect operations and efficiency.

The best practice in an effective FP&A is to keep a buffer in planning for these fluctuations and changes. Timely realization of risks allows organizations to mitigate them before they amplify.

For example, a processing unit must maintain a buffer for fluctuating oil prices in its financial plan. This buffer will allow them to operate optimally if the prices rise. However, if the prices remain constant, the buffer amount is an asset that can be utilized later.

4. Using the Past to Plan the Future

Intelligent financial planning and analysis are to have previous data before you plan. Insight into practices and policies of the previous year helps make future decisions.

Reviewing past financial structures allows analysts to see how previous plans performed. They can also check the budget allocations to different areas and their impact on operations.

Additionally, they can review whether those plans yielded the desired results. In case a specific department underperformed, they further dig into its reasons. If the reasons were related to insufficient finances, they could be managed by providing more funds in the future.

However, if some metrics were constant in the previous fiscal year, their funds can be maintained to sustain performance. Thus, by keeping past practices in mind, financial experts can make better decisions in the future.

5. Having a Team of Experts

Financial planning and analysis have significantly evolved over the past years. For example, research by a professional platform concluded that Financial Planning was the 13th most sought-after job in 2022. These findings are proof of the growing demand for expert financial professionals.

A professional team makes an enormous difference in the overall success of an enterprise. Financial experts are experienced in relevant fields and can offer the best services. They help organizations formulate a business plan, monitor it, make budgets, and draw conclusions from regular reports.

Not only this, but these experts are also aware of leading technology that make financial planning and analysis easy and smooth. Therefore, these individuals do not consider technology to be their enemy. Instead, they utilize financial reporting software to the maximum potential to assist them in their work.

On the other hand, inefficient individuals making financial plans can lead to disastrous outcomes. Money matters are the most sensitive aspect of any business. Handing it over to incompetent people can cost organizations their time and money.

6. Leveraging FP&A Software

Economic dynamics are constantly evolving. As a result, the challenges businesses have now are unique. To stay in line with these trends, utilizing FP&A software is the best practice for every enterprise.

Human resource has its independent significance. However, today’s fast-paced and competitive market demands instant planning and robust forecasting. A proactive approach is the only promising business strategy. Investing considerable time in compiling reports is impractical.

Moreover, markets are subject to fluctuations. Trends keep changing, and so do business needs. Considering these challenges, it is impractical to invest time in maintaining spreadsheets.

Given these circumstances, it is best to use reliable financial planning and analysis software for small businesses that helps gather financial information and compiles and organizes it efficiently.

For example, cash flow statements and ratio analyses are vital reports that help make financial decisions. Yet, compiling these reports accurately requires time and effort. FP&A software immensely reduces the time and effort invested in compiling all information. In addition, they have all data stored and regularly updated.

Automated financial reporting reduces the risk of human error. In addition, they allow experts to focus their attention on strategic planning and decision-making.

7. Working in Collaboration

Financial planning and analysis are not restricted to the finance departments. Their work is fruitful only when the other departments align and agree to follow suggested procedures. The collaboration among all units in a company determines how successful or unsuccessful a financial plan will be.

For example, a business decides to reduce operational costs by 5%. Independently, this is a financial decision made by professionals by analyzing data. However, the procurement and manufacturing department determines how practical this decision is.

The procurement department looks for cheaper sources of power and less costly materials but with the same results. Similarly, the manufacturing heads find cost-effective ways of running their units. And thus, a single strategy to intelligently spend money trickles down to the bottom of the decision-making chain.

This example shows that a financial decision will be implemented only if and when the relevant units find it practical and find ways to make it work. Without proper collaboration, making financial decisions and sticking to them is difficult. Then they are vague plans on paper and hold no real value.

8. Budgeting “Bottom Up”

Several businesses separate strategic and operational planning in their decision-making process. This misconception is the first step toward ineffective financial planning and analysis. Without a clear understanding of daily operations, financial planning is incomplete.

Therefore, the bottom-up budgeting process is ideal for financial planning and analysis. Bottom-up budgeting involves departments creating budgets, which are forwarded to the top management. Decision makers consider all requirements before finalizing their financial plans.

The most significant advantage of this technique is that it keeps the decision-makers aware of the needs of the implementers. For instance, a financial expert must know how much fuel is consumed to run the production unit for a specific time. Additionally, they must know the number of items produced with the said running cost.

Financial experts must understand these operational elements to draft financial plans. However, even if they do, these plans are not practical enough or do not yield the desired results.

9. Consistent Reviews

Financial planning and analysis is not a one-time job. It is a constant process divided into two components: planning and reviewing. Contrary to common belief, financial plans are flexible. They are subject to amendment in light of existing or unfolding scenarios.

Regular review of executed plans allows financial analysts to track and measure progress. For example, studying financial reports like cash flow and profit margins lets them determine whether growth is according to KPIs. They can also identify loopholes and rectify mistakes.

Regular financial health review updates all stakeholders and decision-makers on their business’s progress. In addition, FP&A reports would be regularly updated and shared with all departments.

10. Insights into Competitive Industries

Maintaining competitor practices and market trends is essential in financial planning and analysis. It allows financial experts to review their progress and make any necessary changes. They can make timely adjustments or amendments to their existing or new plans if the situation demands them.

Typically, such insights involve seeing how competitors’ prices and other elements impact business. This practice lets them check the cost of implementing similar strategies to their operations.

By “looking around,” decision-makers can devise better financial plans that bring value to their business. Not only this, but businesses can also see what practices or strategies proved harmful to their competitors and avoid them.

11. Leaving Room for Improvement

Finally, constant improvement is the best practice in efficient financial planning and analysis. As mentioned, financial plans should be reviewed and updated to stay on top of the competition and mitigate risks.

A stringent, unwavering financial plan can be destructive for an organization. Necessary flexibility is the key to success. It is important to note that we use the term “necessary” to emphasize the need for review before changing a plan or sticking to it.

Sometimes financial experts make unnecessary changes after being intimidated by their competitors. On the contrary, some stay with their flawed strategies despite seeing their ineffectiveness. Therefore, it is vital to have a balanced approach to devise successful plans.

Financial planning and analysis consider unforeseen circumstances and keep in view the ground realities. They are neither too strict nor too flexible.

The Bottom Line

Financial planning and analysis are crucial aspects of any business. The past few years have witnessed a drastic change in FP&A. An intelligent approach is to keep up with market trends and make wise decisions.

We recommend having financial planning and analysis software such as Financli to have all financial information and reports handy. This software provides error-free and instant reports that allow experts to plan their funds for more profitability. Contact us today to learn more about our FP&A software and have yours now.

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