Strategic Financial Planning: Aligning Business Goals With Financial Reality

Strategic financial planning plays a critical role in steering a business toward its financial objectives. It entails assessing past and present financial data, creating detailed budget forecasts, understanding revenue streams, and focusing on important financial metrics. 

At the heart of it, strategic financial planning is about developing a clear roadmap that guides business owners in making sound financial decisions, optimizing cash flow, and driving business growth. Key to both building and implementing that plan is using the best tools to ensure clean financial data and automate business practices where prudent.

Let’s explore how strategic financial planning can help business owners grow their companies at different stages of their business evolution.

Contents:

1. So what is strategic financial planning?

2. What is strategic financial planning from an accounting perspective?

3. Building intentional and attainable financial goals

4. How do financial planning and strategic management boost businesses at different stages of their growth?

5. How streamlining data entry helped our ecommerce and SaaS clients grow

So what is strategic financial planning?

Strategic financial planning, in a broad sense, is understanding your actual financial data and using it to predict future business activities. First and foremost, it stems from creating a good budget forecast while assessing how your revenue is derived and how your expenses relate to that revenue. Having established that, you can work with us to start projecting different business metrics like your percent of salaries against revenue, or your percent of the cost of the labor to get that revenue.

What is strategic financial planning from an accounting perspective?

A strategic plan for a company, in fact, begins with having good bookkeeping and good financial records from the start. This step is crucial so that your data is clean and usable to make strategic decisions. From that data, we can develop a month-by-month budget to forecast the future. That type of data really creates a solid cash flow outlook on where the cash is, how it will come into the company, and how frequently it gets used up, which is a tremendous insight.

Strategic financial planning is an investigative process of data assessment, and it takes several steps to arrive at robust predictions. While every practice might take a slightly different approach to it, let me briefly explain how we build your strategic financial plan at Vilms Consulting.  

First, a reality check: Data assessment

As accounting experts, we always start with one of your most crucial resources, your exact financial data, and we make sure to evaluate it with mission critical technology. Since we work in QuickBooks Online, we ask all our clients to share QuickBooks Online files with us so that we can review the integrity of the data and the inputs to date to see that the data is clean. 

Once we have confidence in the robustness of the data, we begin building the plan by asking various questions:

• How are you deriving your revenue?
• Do you have long-term contracts?
• What is the duration of those contracts?
• How frequently do you bill?

Yes, we’re taking a deep dive into the details here. We need to understand the exact processes behind the data.

Next, the broader picture: Accounts receivable

The balance sheet gives you tremendous information about accounts receivable, which is invaluable for strategic financial planning. In service businesses, with whom we work frequently, financial processes require careful design. If you’re not billing timely, you’re not collecting the cash timely. If you’ve paid all your people already (whether they’re salary people or contract people) without a process that balances that output with input, you’ve got financial chaos ingrained into your company, which will spread quickly.  

Therefore, we take a really hard look at your accounts receivable by asking these types of questions:

• How do you bill?
• Do you bill at the beginning of the month or at the end of the month?
• Do you bill quarterly or monthly?
• What are the terms on which people pay you back?

Digging into accounts receivable and billing really helps a company understand why they’re short on cash, despite having solid revenue numbers. For us, accounts receivable is the best source of information in your financial file.

Strategic action: Forecast and predictions reassessment

The final stage is creating a budget or forecast that is based on exact, most current knowledge. We make an informed prediction of your company’s financial activities in the next 6 months or a year. Then we measure each month’s predictions against the actuals just to reassess our assumptions. You now have an ongoing exercise: action informed by an evaluation that grows more detailed and accurate and the amount of information compounds over time. It also teaches you which numbers to drill into (for example, even though you may have a very long list of expenses, there may be just two that are really important in driving your business forward).

Building intentional and attainable financial goals

Yes, you know your business inside out. You’ve proven you know how to make money and how to spend money. But do you have a complete understanding of your financial statements? Are you getting all the information they provide, as these documents can often be difficult to read?

You need to understand five numbers on your reports to have a full understanding of your company. These numbers comprise the crucial pieces for building your financial strategy and plan. Once you understand these values, you can empower your business with a clear focus upon which to build its future. The key is to take each number off the page and show how it relates to your business processes, outcomes, and goals. 

For example, let’s focus on accounts receivable. We can begin by asking questions such as: what if you bill at the beginning of the month or what if you bill every two weeks because it’s a substantial job? Just thinking about these actions and how they are affecting the financial numbers shifts your perception. Conversations like these are really where you need to start so you can gain a mission critical understanding of your company’s DNA: you’re not doing bookkeeping just to pay your bills or to file taxes, you’re actually building a strong tool with unique and ever-growing insight into how to run your company.

How do financial planning and strategic management boost businesses at different stages of their growth?

Strategic financial planning can look different depending on which stage your business is at in its growth. 

The early stage of business growth

In the beginning, your focus is on funding, investors, and the first investment round.

Your company may be in its first year and you may not have any revenue because you’re still designing the system. In this case, you have to plan on where your source of revenue is or your funding is coming from during that dry period. This is how you can get to the point when you start selling. Also, you need to account for how long you can have cash in your company to create or execute those sales. This will help you see a clear direction for the strategic financial plan. If we get to this part of a milestone, then we have to make sure we’re raising money for this next stage.

Scaling stage of business growth

As you grow, understanding where those revenues and cash are coming from is imperative. While you’re hiring people and creating the infrastructure of your company, monitoring cash flow becomes tremendously important.

For example, say your company is in its second year, so maybe you’re pulling together your policies and procedures about HR-related matters, employee benefits, or their 401(k) plans. Now that you have a more robust workforce, ask yourself, is the revenue supporting that? If it’s not, how soon are you going to achieve that? To grow, you need more workforce, but that requires more revenue. In this sense, the focus of this stage would be synchronizing the revenue and hiring process.

The mature stage of the business growth

As you arrive at a more steady state, maybe you’re not hiring as frequently, but now you’re leveraging your workforce. While your revenues have gone up, you’re benchmarking on where you think you should be, and you might not be looking at the dollars in your financial statement, but at the percentage of your sales. 

In addition, make sure to investigate how much you’re spending on marketing, what the industry standard for those expenditures is, and so on.  

At this stage, there’s a lot more historical data to work with, so the analysis and planning can be more fine-tuned, and usually, the predictions don’t contain that much volatility. 

How streamlining data entry helped our ecommerce and SaaS clients grow

At Vilms Consulting, we work closely with many ecommerce and SaaS companies, so let me give you a few examples. 

We have a B2B biotech company with all their sales in Stripe. They were getting mired down in the minutia of the orders and in some reversions of their financial statements in the sales of the day. Just the data entry and transfer of financial data from one system to another was crippling the business, so to help them deal with this issue, we started using Synder. Immediately, it saved them about 20 hours a month, and that’s just on data entry. 

When looking at technology, you need to ask: how can this tool help with things that don’t need to be a human process? Data entry is much better managed by automation. With manual data entry, there are keying errors or input errors, and just the sheer volume of data that you spend hours on is not the best use of your time. Now, we have daily up-to-date records that we can use for business purposes and making strategic plans. 

Another company that we work with operates on the Amazon platform. They use various payment processors (carts) in many countries. For the business owner, the main goal was to understand how to get all financial data from all those places into their accounting system. Even though some of the platforms offer a lot of analytics, that information might not be smoothly getting into their financial system. To solve this, we looked to technology and searched for solutions that smoothed out the data entry and helped our clients have robust data. 

All in all, data entry is a necessary bookkeeping task that becomes an extremely time-consuming exercise, particularly for businesses with high sales volumes, such as ecommerce or SaaS ones. Online sales create a maze of transactions from different sales channels and payment gateways that are best untangled and addressed by reliable software, which streamlines all these processes. And that in turn can become a solid base for solid strategic financial planning.

The importance of robust ecommerce and SaaS reporting 

Having a good financial platform is all about good reporting. Looking at what’s preventing you from having up-to-date books, then solving that problem with automating technology is an important step in having a full financial picture. Understanding how systems fit together, for example how vendor partnerships work, can be a great resource to allow you to work in the whole ecommerce industry.

Since there are many platforms and carts, having a system that can put those two things together seamlessly allows you to standardize your process and consolidate data. When working with our ecommerce clients, we explain how the bookkeeping is going to be done and what connector we’re going to use to put things together smoothly for you, the business owner, and have timely and accurate data in your financial services system.

Closing thoughts

Strategic financial planning is a dynamic process that requires continuous evaluation and adjustments. It empowers business owners to navigate financial complexities and make strategic decisions that can significantly impact the growth trajectory of the company.

With the right approach and use of technology, strategic financial planning can result in improved operational efficiency, increased profitability, and sustained business growth regardless of the stage of business. 

For businesses operating in sectors like ecommerce and SaaS, strategic financial planning can provide a solid foundation for success by enabling timely and accurate financial reporting.