Running a business without business financial planning is like driving a car without a destination and without a route to follow. If you decide to take a cross country road trip, wouldn’t you decide where you were going, what roads you plan to take, and how much time you would allow to reach your destination? In addition, wouldn’t you have alternate routes identified in case one of your selected roads was closed?
If you have a lot of time, you might choose local highways. If the weather is favorable, you might take a more scenic route. But if time is of the essence, you might omit these routes in favor of the interstates.
You’d have a budget for gas, lodging and entertainment along the way. You might make reservations at certain hotels or resorts in advance to ensure their availability, or you might leave the accommodations to whatever is available at the time and let it depend on where you are when you decide to stop driving for the night.
Your business deserves the same kind of attention to strategic financial planning and B2B CFO® provides small business financial planning consulting to help you chart your map. Your destination might be a certain level of revenues. This might be expressed in terms of dollars, units, hours, or other measures. Some business owners will set goals based on Total Assets or Net Worth.
Once you have determined your destination, you must evaluate the various routes to achieve your goals. These strategic financial planning routes might include product mix, pricing strategies, marketing strategies, financing obligations, tax issues and alternatives, staffing levels and, compensation. The route you take with your business is reflected in the choices you have to make as you move toward your goal.
The planning requires you to make certain assumptions. On the road trip, the assumptions included the time available, the budget, the weather and, potential road closures. In your business, the assumptions might be strength of competition, market conditions, time available to reach the goal, costs of materials, cost of capital equipment, interest rates or, financing options.
Your financial plan should start with your assumptions and your goals (destination) and you should calculate the routes available to you. Then, you need to evaluate the routes and determine if they are achievable. If not, then perhaps your goals are unrealistic.
Sometimes a financial plan will start with assumptions and add routes, ending with a destination that was not previously known. In this case, you need to determine if the resulting destination is near enough to your goal to be acceptable.
In either event, you should test various combinations of assumptions to evaluate the results under various scenarios. This provides the sensitivity data that helps you know how much latitude you have when making decisions in your business. This sensitivity analysis is an essential element in business financial planning but it is often overlooked.
As with your road trip, you must constantly re-evaluate your assumptions, routes, and destination. Similarly, with your business plan, you should create it, use it and revise it many times as you embark on your trip to success. Your B2B CFO® strategic financial planning advisor can provide Chief Financial Officer services that include your introduction to corporate finance by helping you develop your plan, refine your assumptions, evaluate your route and sensitivity and arrive at your destination. Contact us to find out how our Cheif financial officer services can help your business.