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Effective financial planning will secure businesses a certain future

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By Simon Bittlestone, CEO of financial analytics company Metapraxis

2020 has been an unpredictable year, bringing further volatility to already uncertain markets and exacerbating difficulties that businesses were already facing. Many businesses are feeling the strain on their cashflow and are hastily trying to organise their finances effectively to ensure survival and the ability to deal with any future challenges. Yet, with more uncertainty still to come, it’s key that business leaders know how to deal effectively with the challenges that lie ahead in order to remain profitable.

Recognising the challenges

Accurate financial planning, and particularly the management of cashflow, is essential to futureproofing and planning. The logical place to start when defining a longer-term plan is by setting realistic targets that align with the overall business strategy. In order to ensure targets are achievable, which is critical, historical and market performance data should be used to build a model of the current business.

Building a model that allows the board to see the performance trends across products and services in the context of the market performance allows businesses to determine their starting point for the year ahead and set realistic expectations. It also gives a better understanding of the nuances of the business, including how changes in things such as supplier and customer payments affect cash flow and how products and services vary across different regions, giving the business an understanding of how to optimise their assets.

The next challenge involves putting a plan in place that delivers on the business objectives. This means that businesses need to reconcile the goals being set from the top and the plan of action being implemented from the bottom. However, a lack of collaboration often means that a business’ strategy has to go through several iterations before it matches management’s goals. Communication and clarity on desired outcomes are essential, especially in larger businesses that stretch across multiple departments and sometimes have a global reach.

In addition to communication challenges, it is also important that the planning process is not a drain on time and resources, which can often be the case when using the wrong tools. Excel, while a worthy tool, is not sophisticated enough for the type of analysis and information needed to inform complex decisions. Businesses must take advantage of the technology at their disposal, running ‘what if’ top-down scenarios to understand the impacts and outcomes of various factors.

Securing your future

The colossal impact of the Covid-19 crisis, alongside political and socio-economic factors, and the speed of today’s digitally enabled world, makes markets uncertain and difficult to predict. But CFOs don’t have to resign themselves to being unable to plan for them. By adapting an agile approach to financial planning, they can help to safeguard business performance.

It’s no longer sensible to run a one-off annual planning process; the ability to successfully achieve goals in today’s

Simon Bittlestone

Simon Bittlestone

landscape increasingly depends on the ability to identify future uncertainties, risks and changes, and react to them. Doing so means implementing a rolling budget and flexible plan.

Fortunately, financial analytics technology can make this a reality. It allows all the key drivers of business performance to be mapped out over time, so that the finance teams can see how each of these drivers were affected by internal or external past events. In turn, this allows the board to analyse how various future scenarios might pan out and the impact these may have on the business. Management can then use this information to make better strategic decisions.

Having this technology in place also consolidates data from across the business, making it easily accessible and improving communication between management and financial accounting ensuring all areas of the business are streamlined. Should there be any changes in leadership, trends and insights can be easily accessed, limiting the impact on performance. Keeping these models updated is vital to ensure the company can act on the most relevant information.

Taking it one step further

There are other practical steps management teams can follow to help safeguard the business. Optimisation strategies, for example, whereby businesses determine how best to split their capital across different strategies, projects, products or services across various regions, are a key area of focus especially right now.

Choosing to back the most profitable service lines in a time of financial uncertainty is clearly beneficial, however it is not always easy to get right. This comes back to businesses needing to utilise financial analytics technology to assess all factors and situations and determine the best options in the long-term for the business.

CFOs and leadership teams should always keep the cash flow at the heart of any decision. Having full transparency means they can increase the emphasis on products and services with more positive cash flows, making the business more profitable and able to deal with fluctuations.

The purpose of financial planning is to set out the business goals for the year ahead in order to work towards achieving the overall strategic objectives. This used to be a very insular process – there was no need for management to take anything other than its own internal factors into account – and planning according to the business’ own financial year was very much the ‘norm’.

Now, with the landscape more uncertain than ever before, the ability to adapt to fluctuations is hugely important when it comes to successful financial planning. Scenario modelling and financial analytics allow for rolling plans and CFOs to be more agile in their approach. This, along with more prudent base planning assumptions, will allow the board to prepare the business to weather most storms.

Global Banking & Finance Review


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