The economic upheavals caused by the two-year health crisis and the war in Ukraine have made predictions a balancing act. Repayment of PGE, inflation on wages and utilities, lack of visibility on the development of the activity …
The adjustment factors are numerous and require CFOs to be extremely rigorous, clear and responsive in establishing the business plan (BP), which more than ever constitutes a management tool at the service of the company’s strategy. And that despite the uncertainty.
Here are some recommendations for staying on course.
As a reminder, BP is a numerical model of the company’s medium- / long-term objective, which includes a projection of the income statement over 3 to 5 years, with a liquidity forecast. It is structured according to the most relevant analytical grid for the company (by points of sale, by teams, etc.). The analysis performed during the development of BP can be broken down into a host of precise and concrete actions, which make it possible to orient the management of the company on a daily basis.
Key principles to respect
But before that, any business plan must respect 5 key principles:
- reflect the managers’ medium / long-term strategy, their ambitions and the company’s financial model;
- be consistent between the expected revenue and the resources implemented to achieve the goal;
- be able to integrate as many variables as necessary via dynamic modeling with easily modifiable assumptions;
- be able to justify all information contained in BP on the basis of reliable elements;
- suggest an overview and then a detail of each unit.
Once the framework is defined, it is left to build BP. Again, there are some important steps to follow. The first is to break down the company’s strategy into SMART: S goals as specific and supported by clearly defined goals. M as measurable and quantifiable. One as achievable, given the depth of the market and the economic environment. R as realistically given the company’s resources. And finally, T as defined in time, namely over periods of 3 or 5 years, specifies Anthony Guez, founder of the financial consulting firm Mindset Finance.
It is also important to involve the operational teams in the construction of the PB in order to stay as close as possible to the reality on the spot. They need to have the powers and to know the budget available to each department to achieve their goals, Anthony Guez emphasizes. For her part, Laura Pallier, co-founder of Regate, a complete SaaS solution for automating financial management, notes that: all too often and due to a lack of suitable tools, finance departments do not communicate sufficiently to operating staff the evolution of real-time consumption of it. allocated budget.
Another important point is to respect a logical articulation in the development of PB. It must be clear and consistent, especially in terms of cash-level monitoring, notes Laura Pallier.
Finally, BP must not be frozen. Any information that can be expected to be relevant and have an impact on the company’s activity or cash flow must be integrated in real time – such as during the Covid period (PGE, partial or total shutdown activity, etc.).
Get a clear overview of your cash flow situation
Cash projections are the tendons of war in the development of BP. The CFO must be able to know his exact situation and be able to identify his potential cash needs. For this, it is recommended to work on hypotheses about best case / worst case scenario type and to introduce corrective measures to adjust the recording if necessary.
But according to Laura Pallier, it is also possible to imagine an intermediate scenario by answering questions such as: how far will my cash take me if I reach 50% of my goals? Based on which settlement assumptions? What happens if my customers pay me 30, 60 or 75 days? At what point should I apply corrective action and postpone e.g. the originally planned hires ?. For her, these issues have also been added to a variable that has become significant, namely the rate of inflation and its consequences, especially for the cost of supply.
It then remains to update regularly – quarterly, or even monthly depending on the case – all the components of the business plan to compare them periodically with the actual data in the income statement. Landing at the end of the year should make it possible to project on hybrid data (actually AND forecast), which will be refined over time as recommended by Anthony Guez.
In addition to the numbers, however, there must always be a universal rule: that of pragmatism. It is important to aim for the most granular blood pressure possible, but there should still be enough time to monitor it. The trick is to find the right balance and the right tools to follow the evolution of the data in real time, at least to keep an eye on the big masses, Laura Pallier concludes.