What’s the Goal of Strategic Financial Planning and Why You Need It?

Any successful entrepreneur and business owner will tell you that achieving their ambitious goals had a lot to do with gathering the required resources to do so. As the old proverb goes ‘it takes money to make money’ and this is why strategic financial planning is so important for businesses who intend to expand themselves and grow.

In this article we will outline some of the most essential steps of strategic financial planning and what each of them contributes to unfolding a comprehensive and systematic course of action that will lead the way to achieve the results you are expecting for your business.

There are essentially 6 steps to develop a strategic financial plan and these are:

  • Establish the goal/relationship
  • Gather data
  • Analyze data
  • Develop a plan
  • Implement the plan
  • Monitor the plan

Let’s dig deeper into each of them.

Establish the goals for your strategic financial planning

strategic financial planning

The first step of strategic financial planning is to define your destination. The question to ask here would be: What do I want to achieve?

This goal is usually one that has a predefined time horizon and a benchmark that will indicate if you have reached the goal or not. For example, a business can set a goal for its revenues like this: ‘Increase revenues by 35% in the next 3 years’. Or it could also set a goal for its profitability, such as: ‘Achieve a Net Income Margin of 15%’.

A clear goal will be crucial to determine what needs to be done and how much it will take to achieve it.

Gather financial data

Let’s say your goal is one of the two we described above: ‘Increase revenues by 35% in the next 3 years’.

The question here would be: What drives revenues up?

If your primary source of revenue comes from selling goods that means you are going to need more inventory. Additionally, you may need to incorporate more people into your sales team to serve new clients and that may also require some new office space, warehousing space for your additional inventory, raw materials, extra hours, and so on.

After you have identified which variables are directly related to your goal you can now move to the next step which is to analyze the available data.

Analyse your data

Now, it’s time to roll-off your sleeves and crunch numbers for a bit.

After identifying the key drivers that will move your revenues up, you now have to calculate how much resources you need to put into the business to move in that direction.

You’ll have to answer the following question to complete this step: How much do I need to achieve my goal?

A financial planner can be of great assistance to help you in analyzing your business’s current financial situation and past performance to determine what’s the size of the investment that needs to be made to achieve your 35% revenue increase.

  • How much inventory do you need to produce or purchase?
  • What’s the number of new sales reps that you need to bring in?
  • How much each new client usually buys and how many you need to bring onboard?

These answers are important in the strategic financial planning process as they will result in a number (an amount of money) that you’ll have to pour into the business to move forward towards your goal.

Develop a Financial plan

At this point, you’ll create a timetable for your plan.

Let’s say you have already estimated that you’ll need a certain amount of money to achieve your goal of increasing revenues by 35%. Now you have to outline, step by step, the activities that you need to complete during the following 3 years (the plan’s original time horizon) to achieve this.

For example, you may want to start by raising 30% of the capital required during the first year and move progressively from that point forward.

The question here would be: How do you plan to raise the capital and when?

You could start by asking for a bank loan or you could issue some shares to finance that initial 30% investment and from that point forward you may rely fully on retained earnings to achieve the goal, or you could do something entirely different.

In any case, you’ll need to create a carefully time-bound plan that outlines each step required and ends up resulting in a 35% increase in your revenues. Pretty clear, right?

Implement the Financial Plan

At this point, you already know exactly what you should do and now you just have to put yourself to work. You’ll probably have to meet with investors, get your team on board, start hiring and training the new sales reps, and so on.

You will, at this point, answer the following question: According to the plan, what do I need to get done now?

The plan will be your treasure map and your implementation will be the journey to find the treasure. As any other treasure hunt, you may find some storms along the way and there may be some adversaries to defeat. As long as you remain perseverant on the plan, you will continue to move forward in the direction of your goal.

Monitor and review the Plan

Here’s where the metric we initially established comes into play to let you know if you are moving closer to the target.

If you are aiming towards a 35% increase in your revenues in 3 years, you can evaluate your progress every 6 months to determine how much of that growth you have already accomplished. As a rule of thumb, under normal circumstances, if you have deployed 50% of your resources already you should have reached at least 50% of your goal in say, half your time horizon.

That’s not necessarily the case for all projects, but you should keep in mind that no growth in half the time with half the resources already invested is not usually a good sign.

Bottom Line

Through strategic financial planning, you can develop a systematic approach to achieve new goals for your business by taking into account the resources that will be required to accomplish them. Along with the cooperation of all the different areas involved in the project, your plan will advance on solid ground as you have already prepared yourself with everything you need for the journey ahead.

At Bloomwealth we can help you design a strategic financial plan for your business, give us a call today and take the first step towards your financial goals.