Is my business on the right track?
By: Jesson Prohaska
Tags: Financial Planning, Startup, Scalability

Is my business on the right track?

Congratulations, you have made it past the scrappy, startup, bootstrapped phase, and have an established business that has been humming along successfully for quite some time. How long has it been since you have checked in to make sure your business is running as optimally as possible? When things are going good, it’s often difficult to evaluate whether or not your business is still on the right track. One way of doing so is through implementing Financial Planning and Analysis (FP&A) or Strategic Finance.

What is FP&A?

Financial planning and analysis (FP&A), is budgeting, forecasting, and the analytical processes used to support an organization’s financial health and business strategy. FP&A combines an in-depth analysis of operational and financial data to help align business strategies with financial goals. FP&A is data-driven and requires analysis to measure performance, proactively plan business operations and forecast versus simply accounting for revenue as well as expenses. FP&A factors internal variables, competitive intelligence as well as broader demographic and economic trends to evaluate an organization.

So, if your business is growing, making money, or just trying to get a better understanding of finances, FP&A is the natural next step after establishing fundamental treasury and accounting disciplines. The FP&A function will enhance cross-functional and direct leadership within your organization by improving the actionable information available to make informed decisions based on one set of facts and analysis. Far too often, FP&A is missing in startups and scale-up companies. Believe it or not, many mature companies do not even utilize FP&A. The function is an analytical process, and insights are often misunderstood to be non-valued added reports produced by accounting and treasury. Without FP&A, business strategies and company goals are rarely executed with excellence. Implementing FP&A will allow your company to align its business and financial goals to maximize growth and success. When your company or organization is in the middle of a growth period, it can be hard to see what outside resources you may need. If any of these three points stand out to you, it might be time to establish what degree of FP&A is the right size for you.

Strategic finance is critical.

Who owns market analysis, competitive analysis, project/initiative analysis, and so on in your organization? If the answer is everyone or nobody, then you are restricting growth as well as creating business risk. Depending on what stage of growth your business is at, there are different paths you can take to turn sub-optimization into maximum optimization. If your organization is at the scale-up phase, this would be a great time to build in an FP&A capability. However, if your organization is a startup, it’s more than likely that your pitch deck is the beginning of your strategic financial plan. To formulate a long-term strategy, your organization must aim for a number of competitive market advantages. The first step in doing this is to create a business plan with a financial forecast that is viable and lives longer than a few months.

Link business and financial goals.

Goal setting is not simply drawing pretty pictures on a whiteboard and combining trendy words. When setting financial and business goals for your organization, you must figure out what matters to you. Consider everything, from practical to distant, on the table — than sort out what is within reach, what will take some time, and what goals must be a part of a long-term strategy. Often, several of your financial goals and business goals will align, and when they do, it would be wise to consider tackling them together. As a startup, your organization’s passion, guts, and a little bit of crazy earned you success. Now, as a scale-up, that same method will certainly steer you off course. As a mature company, this mentality will eventually lead you to bankruptcy or a fire sale. In order to mitigate business risk and potential failure, establish an FP&A capability to work cross-functionally with all of your ideas, products, services, initiatives, and projects. FP&A will align your business dreams with your financial realities and hold you accountable to the numbers.

Time for a dashboard.

Our culture eats strategy for lunch. These days, the strategy needs a dashboard to breathe. To align both financial and business goals, your organization’s communication must be transparent and believable. This starts with strategic visibility, and your company dashboard will accomplish that objective. An organization’s knowledge is its power and that power feeds back into the culture. When dreaming up a dashboard, it should be FP&A-centric and include business KPIs as well as other pertinent key initiative updates. As a rule of thumb, for scale-up companies, restricting the dashboard to a “large printout,” is a wise start. Less is more in the early stages. Be sure that your dashboard displays actionable information rather than data. This will help your partners and colleagues to better understand its purpose and react to changes in performance.

As your organization moves on from a pitch mentality, it would be wise to consider developing an FP&A capability to ensure your business is on the path to success. Get ahead of your business challenges, create an open sharing culture at your organization, and allow everyone to measure success the same.