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Understanding the Importance of Financial Planning & How to Implement it Confidently


It’s time to highlight the importance of financial planning in business. Most companies have, at some point, experienced the same problem when it comes to their financial planning process. They spend copious amounts of time and resources gathering data, projections, plans and project details for a budget only to realize that the information has expired and will be rendered useless until the following year.

This is not how you build confidence in your financial planning process.

In order to prevent this from happening over and over, there are three main issues that need to be addressed:

  • lack of precision in strategy;
  • irregular communication surrounding process;
  • breakdown of coordination between departments.

Here are five tips to help reboot your financial planning process and prevent those three issues from recurring next year.

1. Outline your strategy and coordinate your financial planning process

In the Harvard Business Review piece “The Big Lie of Strategic Planning”, Roger Martin disputes the idea that putting the words “strategic” and “plan” together leads to both being effective. Instead, he argues, that strategy should exclusively concentrate on how to most effectively generate revenue or realize the highest priorities. First a clear strategy must be initiated, Only then can, the annual financial planning process begin. The financial planning process’s role is to assess the costs and resources required to achieve the goals set out in the strategy. This two-step process provides more clarity, while also aligning budgeting and planning with revenue-generating or high-priority goals.

2. From now on, utilize rolling budgets

Due to the nature of modern-day business, an “annual plan” is oftentimes outdated by the end of the first quarter. In order to build confidence in your financial planning process, it’s better to utilize rolling budgets. Instead of being an annual activity, rolling forecasts happen in a more regular and frequent manner. Whereas annual budgets include hundreds of line items, rolling budgets solely focus on the key business drivers. While annual budgets may bog you down, rolling budgets work as forward-looking mechanisms that will serve as early warnings should your plan veer off course.

Make forecasting a more regular occurence than yearly with rolling forecasts.

3. Engage with financial leaders throughout the year

In order to maintain a successful financial planning process, you must actively engage with business leaders throughout the year and seek to increase your transparency and visibility. One noted way to encourage this engagement is to present better real-time visibility into analytics, trends, and results. How do you do that? Have your financial team utilize advanced technology solutions that offer a compelling 360-degree view of all aspects of the business and spotlight dashboards. These tools offer a wide range of customized data and insights in real time. When your budget presentation transforms into a dynamic, sleek, real-time electronic window, business partners and associates will become more engaged in the financial planning process.

4. Incorporate key players from all teams

Once you put a dynamic rolling budget in place, the next step is to dive further into your organization and get clearer identification about the key drivers of results and revenues. This is also an opportunity to gain insight into issues and programs that are increasing costs or decreasing efficiency. One way to deepen engagement, build more confidence in your financial planning process, and identify more relevant data and insights is to incorporate the knowledge and expertise of key players from all teams who are on the front lines of your business or operation. By pinpointing these key players, you can access their hands-on insight about the challenges and opportunities they face each day.

You should be incorporating key players from every divison to assist in your financial planning.

5. Adopt an approach that fosters communication

As in all relationships and major business initiatives, frequent communication is key to achieving long-term engagement and results with your financial planning process. When developing your strategy, make sure to focus on adopting an approach that promotes communication touch points throughout the year. Planning in advance when you and your associates are going to touch base encourages input and refines processes and workflows.

Remember, we are working on building confidence in your financial planning process. Start by shifting your process away from a universally dreaded annual event to an ongoing conversation. In doing so, you will build relationships and trust among your teammates, leading to a more confident financial planning process

Bear in mind, that it may take some time to fully implement these steps. The start of a New Year is the perfect opportunity to reflect on how you can improve from previous years and systematically develop a new, more dynamic approach to your accomplishing annual financial planning objectives.

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