6 Key Benefits Of Strong Financial Planning And Analysis
The outbreak of the unprecedented COVID-19 pandemic caught many business entities unaware. As a result, several companies were forced to close operations or scale down significantly. It’s in this backdrop that you’d need professional financial planning and analysis procedures for forecasting.
When you do forecasting, you may have to factor in crisis and have a financial provision of cushioning your business from the effects. Note that you’re not pessimistic but rather aware that emergencies happen when least expected.
In addition, financial planning aligns your business with your strategic plan and business goals. However, in recent years, financial planning and analysis (FP&A) has evolved significantly to accommodate the changing nature of the business environment.
To that effect, it may call for extended financial planning and analysis (xP&A), especially for large corporations that deal in massive data. It may necessitate the adoption of a relevant FP&A tool such as the Jedox or any other available ones to boost your effectiveness. If you’d like to learn more about this, you can click over here.
Your efforts in elaborate FP&A can take your business a long way. To help you out, here are six benefits your business can reap from sound financial planning and analysis:
1. Aids In Cost Reduction
Every business owner aims at cutting costs as much as possible. With that said, you need to study your previous expenditures to identify areas of spending that need to be adjusted. For instance, you can reduce unnecessary budgets without affecting business processes. In addition, you can revise them downwards where costs were inflated.
You can channel the saved finances from reduced costs to other business needs. However, as much as you’d like to save on cost, ensure that it isn’t a deliberate move to derail business success in some sections. As a result, it should be an informed decision for every action taken.
Also Read: 3 Steps To Build Up A Financial Cushion
2. Prudent Budget Allocation
Put correctly, business owners understand the importance of having a budget. Having enough business budget for your financial year helps manage cash flow and reduce costs. Once each department knows its budget allocation, they’ll strategize how to spend it.
In budgeting, the management decides how much is available to spend. Then, depending on the need of each department or independent team, the budget is further broken down.
You may have a budget for marketing, purchasing tools and resources, customer support, and product development. In addition, you may have a budget for performance appraisal where you reward the efforts of outstanding employees.
After each department or individual team has their share, it’s now their task to ensure that their activities are within the limits of the money they have.
3. Mitigates Risks
Mitigating possible business risks is part of your financial planning and analysis team’s work. You can anticipate some risks and take the necessary financial steps.
On the other hand, some threats can’t be foreseen, posing a challenge. A good example might be an economic crisis such as war affecting trade outside your country. Additionally, COVID-19 is an outstanding risk that no one foresaw.
With that said, your business can insure some of your business operations to cushion you from heavy losses if the potential risks finally occur. Besides, you can set aside a budget to cater to unexpected expenses.
4. Fundraising Modalities
Regardless of how the financial strength of your business might be, you might, at one time, need more funds that aren’t available from your initial budget.
These extra funds might be required to expand your operations or boost your business to recover from a loss. In that light, it’s the responsibility of your FP&A team to strategize on how the company can acquire such finances.
You may have to turn to a financial institution and apply for a loan in such a case. However, any bank or other financial institution will ask for your credit score.
The history of your financial accounts will determine how much you can receive from a lending organization. With that said, ensure that your business maintains a good credit score to avoid inconveniences when looking to borrow money.
5. Establishes Clear Goals
Having well-defined company goals might be among the top priorities of any business enterprise. As a business owner, you should estimate what your business must achieve in the next financial year. Moreover, you might establish a very elaborate strategic plan extending to the next three, five, or ten years.
Remember that your business’s vision and strategic plan are only achievable with clearly defined goals. Would you like to operate regionally or nationally in the next three years? Do you plan to have business outlets overseas?
If the answer to these questions is a ‘yes,’ you need to allocate enough finances from your budget to help achieve the company goals.
You may not do a one-time allocation for your long-term goals. Instead, you can decide how much you can direct towards the vision yearly until the finances are enough. Note that, to do big projects, you may have to prepare for some time. Therefore, don’t be afraid of taking the initial small steps.
6. Helps Define Growth Roadmap
Last but not least is that FP&A helps put your business on the right course of growth. You can visualize where your business should be in the future and strategize how to get there.
With that said, factors determining the time ahead of your business may include the markets you would like to be in and the kind of workforce you’ll need. In addition, in your growth path, you may as well have to diversify the range of your products.
After defining your growth strategy, you need to implement the appropriate budget to facilitate your growth. In case of challenges on the way, you can make the proper adjustments without losing sight of where you’re going.
Also Read: How To Get Started With Ecommerce?
Money is an asset that financial experts say is in scarce supply. If that is the situation, you need to have a professional approach to planning and analyzing your finances. You may need to improve your financial planning skills by getting the appropriate training.
Hopefully, this article has shown you how your business can benefit from sound financial planning and analysis. Additionally, you can get more information online.