Learn how to start your financial planning

Be aware that not getting this activity right this year could jeopardize the future of your business. After all, planning actions with your activities already underway is like trying to fix a running car. There's little chance of it working, is there?

With you in mind, we've put together this article with lots of tips on how to structure a good financial plan. We'll talk about setting goals, developing a situational diagnosis, projecting scenarios and much more.

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Set achievable goals

When we think of financial planning, the word "goals" naturally comes to mind. Goals that are a kind of guideline for the actions we plan to implement. And when setting these goals, it is more than necessary to keep your feet on the ground and opt for something that is reasonable and feasible.

After all, there's no point in putting things like "leading the market", "making 5x more revenue next year" or "launching x new products/solutions in the first half of the year" at the top of your priorities if no element of reality points to the possibility of achieving your goals.

So stick to what's in the "realm of the possible". As an example, we can cite goals such as:

close the year in the black;
pay all outstanding employer obligations;
increase the profit margin by x% on a given operation;
to retain x% of its customers who account for a significant part of its turnover.

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Recognize your business moment

For your financial planning to really work, you need to be able to recognize what your business's current situation is. In other words, what do you see when you look at the accounts? What actions have been assertive in the last year? What didn't work?

Your balance sheet for the year, for example, will be very important for checking whether you can afford to invest in the coming year and maintain sufficient working capital to guarantee your operation for the coming months.

It's also worth taking some time to bring together the most strategic members of your team to evaluate what went well and what didn't. This type of evaluation should be carried out at sectoral level, with each area taking a position on what was achieved. This type of evaluation should be carried out at sector level, with each area giving its position on what has been done.

Create your own methodology for monitoring results

Creating your own methodology for financial planning is very important, because it's not enough to replicate formulas from other organizations, given that your company has its own business model and various specificities.

However, there are some elements that cannot be overlooked in any kind of financial planning. Check them out:

Cash flow

Even if they're just projections, estimate your income and expenses month by month. Based on financial statements from previous years, you can have some predictability of what lies ahead.

This type of forecast will be important for predicting the best times to make important investments, pay suppliers and even run promotional campaigns to boost your sales.

Working capital

Combined with cash flow, you also need to estimate how much working capital you will need to meet all your commitments throughout the year. Some factors, such as an increase in the volume of stock, a large percentage of your turnover in installment sales and high default rates, will require a more robust reserve.

Variable costs

Variable costs are the great villains of any financial planning, as they are expenses that are difficult to estimate. Even so, you can't shirk the effort of making a good forecast.

One way of dealing with such unpredictability is to monitor the evolution of the proportion of this type of cost in your turnover. If you notice that the percentage keeps rising, assess the need to make structural changes in your operations so that the expense that today represents a variable expense can become ordinary.

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Default rate calculation

Bad debts are putting the operation of many businesses at risk, especially in the country's commercial sector. A survey by SPC Brasil shows that 61 million Brazilians have restrictions with credit protection agencies.

In such an unfavorable scenario, a real task force is needed to recover debtors in an attempt to mitigate the impact of default. To do this, you should include in your planning the organization of a collection department in your company, if this structure doesn't exist. Or even assess the feasibility of outsourcing the collection activity.

That's why, in addition to measuring defaults, you need to take steps to recover the revenue that will make all the difference to closing the next year in the black.

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Project different scenarios when doing your financial planning

When it comes to financial planning, you can't do without establishing different scenarios. This is because it is not possible to accurately predict the behavior of the market in which you operate, and there is a possibility of both positive and negative events for your business.

Therefore, you should always plan for a positive scenario and another for a negative one. As a result, over the course of the year you will have the option of taking a variety of actions, depending on whether certain situations are confirmed or not.

After following this blog post, we hope you'll feel more confident about starting your financial planning. As we've already covered here, don't put off this work until the beginning of next year, as it's essential to start January with everything you need to do well defined.

And if you want to rely on experienced accounting advice, capable of providing the best strategies for your company to improve its financial performance, get to know CLM Controller's solutions now.