In December 2021 I wrote an article on why financial planning was important in the post-Covid environment. As the world returns to normal, or more likely finds the new normal, planning is still important.
Developing a plan is my starting point for navigating any change or execution of strategy. Practice without a common routine and a documented starting point doesn’t allow for improvement. Practicing in a vacuum creates a repetition that ends in the same results.
Your goals should be improved efficiency, effectiveness, pricing, margins, overall revenue, etc. All of these key metrics and more should be planned, measured and managed.
Planning gives you the basis to measure performance, determine progress and adjust to challenges or changing conditions with confidence. A plan gives you goals and the ability to practice the activities necessary to achieve those goals. It gives you a point of measurement to determine your progress and overall performance.
Cash is a key concern and one of the most overlooked planning exercises—often because people confuse their P&L with a cash measurement. However, your P&L (Plan and Actuals) does not account for the full picture of borrowing and spending required to build, grow and maintain a business. Projecting cash need and cash flow is a key component to ensuring business success.
Breaking down expected cash in and cash out by month or even week will help to account for everything. Consider things you might need outside daily operations like capital equipment purchases or office furniture. The larger-cost items might be best planned for in their own list and include criteria of revenue or sales that trigger their purchase.
Update your P&L and cash plans at least monthly. Keeping track week by week allows you to make decisions to improve your business and results.
Building and managing to a plan is a key part of building a scalable, sustainable and profitable business. If you don’t already have plans in place, start today and you will soon wonder how you ever got along without them.
David Gallagher is principal of Spiritus Business Advisors, LLC, an industry consulting firm focused on helping build scalable, sustainable, profitable businesses through standard systems and processes. To learn more visit www.spiritusba.com or email at david@spiritusba.com.