According to the Journal of Small Business Management and Bplans, 71% of companies that are on a fast-moving growth trend are working through a strategic plan. It is key for business growth. These businesses are also more likely to receive funding; any potential investor is going to want to see a strategy in place before they decide to invest in your company.
Your financial strategy provides context for your other objectives and pairs them with projections based on financial data. It allows your company to develop some important parts of your plan including:
Establishing clear goals that are based on solid historical data and projections
Developing a sensible approach to cash flow management
Budget allocation that takes into account potential cost reduction measures
Risk mitigation and crisis management
Standards for transparency
Growth plans
There are critical reasons to go through the process of establishing a strategic plan:
Create a Unified Vision: Once you have a strategic plan, decisions will be made through the application of the plan, removing ambiguity and bringing your team together under a single vision.
Eliminate Biases: There are several pitfalls that your team could experience:
Occam’s Razor Bias—The most obvious decision is the best decision.
Recency Bias—The option most recently presented is best, because it’s still a fresh idea in your mind.
Inertia Bias—You select the option that equips you to think, act and feel in the same way you have been.
Track Progress: Too often, companies assume they are succeeding because they aren’t measuring the right data. A strategic plan helps you identify the metrics that indicate whether your objectives are being met and where you need to focus your energy.
Stand Out From Your Competition: Your financial strategic plan will force your team to think through your strengths and the unique value you bring to your market. This process helps your company understand your place in your industry, what makes your company distinct and it filters out to areas like marketing and customer service. Your company will stand out because your team knows what you are all doing together.
Key Parts of a Financial Strategic Plan
The following are elements of a solid financial plan and key for developing your strategy moving forward:
Expenses and Budgets: All costs, separated into fixed and variable expenses and by departments, equips your business to control resources and allocate them according to your vision for the business.
Sales Projections: Your expected sales growth and the cost of sales. These can be categorized by groups, products or other factors.
Profit and Loss Statement or Cash Flow Statement: Over the next three years, the projection for your cash going in and out of the business.
Assets and Liabilities: This is distinct from your Profit and Loss Statement and will include the startup costs or investments you plan to make in your business in the near future.
Break-Even Analysis: Ideally occurring in the first three years, this tells you when your company begins to make a profit.
Team Structure: This may be included in a different part of your business plan, but your financial health as a company is significantly impacted by the salaries and benefits of hiring quality talent.
Creating a Rewarding Process
Developing a strategic plan for your company requires its own strategy. This is not a process that can be rushed and needs to be completed in such a way that it has good staying power and buy-in from your team. As a strategic plan is built important factors include:
Realistic Goals. While dreaming about where your business can go, the strategic plan is about building a blueprint based on credible information and data.
Flexibility. Your data may reveal information that is surprising or requires a different path than you had originally anticipated. It’s a good idea to be ready to adjust some of your plans based on both opportunities and limitations that emerge during the process.
Get Buy-In. Your strategic plan should not just be your plan; it is best with input from trusted team members and other stakeholders. Involving your team allows you to reach a consensus with diverse input and considerations. They will provide insights along the way, but they will also be key in helping your organization embrace and celebrate your strategic plan.
Prioritize Communication. It’s always better to over-communicate when you are designing a strategic plan. Help your team see the specific ways they play a role in the success of the plan and celebrate as a team when you reach goals or milestones. According to Harvard Business Review, 95% of team members don’t have a clear understanding of their company’s strategy.
Choosing a Partner to Guide Your Financial Strategic Plan
You may be reading this and wondering if the first step is to hire an accountant or even a CFO. Even if you have someone on your team equipped to create a strategic plan, they may not have the bandwidth to take your company through that process.
When you develop a strategic plan, you will include key stakeholders who will bring deep insights about your specific company. It’s also important to include an expert who has extensive experience with strategic planning across a variety of industries as well as sizes and structures of companies.
Outsourcing your strategic planning process to a CFO services provider ensures that the financial reporting that you base your plan on is accurate. They will also help you develop the right metrics to determine whether you are meeting your objectives.
Investing in a financial services provider also sends a message to potential investors that you are taking a strategic approach to growing your business and are dedicating the necessary resources to be successful.
The Power CFO offers bookkeeping, accounting, financial reporting and a variety of other CFO services to companies just like yours. And if the time is right for developing a strategic plan, we can guide you through the process to success on the other side.
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