Businesses that do not plan are more vulnerable to problems. This axiom is particularly true when it comes to corporate financial planning. It helps you analyze current and future costs and revenues to determine the best plan of action. Financial planning touches every aspect of the business, including payroll, employee training, marketing, inventory, and research and development.
Corporate financial planning allows companies to delineate how to allocate resources with greater certainty. And for communication agencies, the importance is the same. Ask yourself some questions: does the agency have enough capital to invest in new technology or a new office? Is it a good time to invest in reserve funds? How will a new client affect revenue?
Comprehensive financial planning demonstrates the agency’s commitment to good business practices, which can encourage investors and increase its chances of long-term success.
But still, many companies ignore planning or don’t pay that much attention to it. And for some managers, just the thought of doing corporate financial planning already sounds intimidating.
However, it’s no big deal. To prove it, we will explain below what this type of planning is and give great tips to start doing it today in your agency! Let’s go?
What is corporate financial planning?
Corporate financial planning is the task of determining how a company will have the resources to achieve its strategic goals. Generally, an organization creates a financial plan immediately after determining the vision and goals of the business. Financial planning describes each activity, resources, equipment and materials needed to achieve the goals within the stipulated time frame.
A company’s financial planning process is done in such a way that it makes it possible to predict future financial results and determine the best ways to achieve short- and long-term goals. Because it is a task that involves looking closely into the future, it is a highly creative and analytical process at the same time.
Strategic planning thus determines the course of action that a company will take: the tasks that are scheduled to be delivered, as well as those responsible for getting everything done on time. And in turn, financial planning takes these actions described in the strategic plan and converts them into cash.
Thus, the financial plan shows the projected revenues as a result of implementing the strategies and the expenses needed to implement the action steps.
How to create sound corporate financial planning?
To create a good corporate financial planning, you will need to analyze the major components of your business. Raise questions about your cash flow – how much money is coming in and how much is going out. What are your biggest expenses, and where are they most likely to increase in the near future? In which area will you be able to cut costs? How will competition affect your agency?
You should also look at potential changes in your staffing and external circumstances, such as fluctuations in the economy (a recession or growth cycle) and inflation. These can have dramatic effects on your agency’s growth.
You can also consider how your business compares to similar ones within the industry. Their stories, especially if they are a bit ahead in terms of experience and success, can give good insights for your decision making. How do they invest from their earnings? What are their priorities?
Remember, too, that corporate financial planning is not a one-time event. Internal and external conditions change. You should repeat the process at different stages of your business and see different results.
All these variables will help guide your agency’s strategic actions. Some important elements to include in your planning are:
- amount of capital needed for operational;
- planned use of revenue;
- future acquisitions;
- balance sheet: a line-by-line breakdown of your debits and revenues;
- cash flow.
Revenue projections should be detailed by quarter for the first two years of the agency, and then the plan can offer annual projections through the fifth year. Among other things, a financial plan should explain how you will finance your enterprise
With this in mind, we decided to expand on this topic and present 5 steps for you to create financial planning for your agency. Here you go!
1. Review your strategic planning
As we commented earlier in the post, your corporate financial planning should start with your agency’s strategic plan. You should think about what you want to achieve at the beginning of next year and ask yourself a series of questions:
- Do I need to expand the business?
- Do I need more equipment?
- Do I need to hire more employees?
- Do I have a need for new resources?
- How will my plan affect my cash flow?
- Will I need financing? If so, how much?
Then determine the financial impact over the next 12 months, including expenses on large projects.
2. Develop financial projections
Create monthly financial projections by recording your anticipated revenue based on sales forecasts and anticipated expenses for labor, supplies, overhead, etc. (If your agency is cash flow tight, you may want to do weekly projections). Now put in the project costs that you identified in the previous step.
Also, prepare an income projection statement (profit and loss) and a balance sheet projection. This can be very useful to include various scenarios (optimistic and pessimistic) in your projections to help you anticipate the impacts of each.
3. Obtain financing
Use your financial projections to determine your monetary needs. Approach partners and business partners in advance to discuss options. Well prepared projections will help assure bankers that your financial management is sound.
4. Plan for contingencies
What would you do if your finances quickly deteriorated? It is always a good idea to have emergency sources of cash before you need them. Some possibilities are: keeping a cash reserve or having plenty of room on credit.
5. Monitor your corporate financial planning
Throughout the year, compare actual results with your projections to see if you are on target or if adjustments are needed. Monitoring helps identify financial problems before they get out of hand.
What are the benefits of corporate financial planning?
Agencies that strive for good financial planning are able to increase their revenue much faster than companies that don’t plan effectively.
Financial planning provides concrete data and numbers for informed rather than subjective decision making, as it shows where the agency should focus its resources for maximum effectiveness in generating revenue and handling expenses.
Efficient financial management allows more funds to be available for marketing, expanding operations, and the development of new services in the agency, which in turn generates more growth.
So, are you ready to start creating your corporate financial planning right now? But don’t stop there, as the financial management of an agency is a much broader subject.