In the world of business, getting the right stuff at the right time is crucial. That's where procurement software steps in. It's like a turbo boost for your purchasing game, helping you buy smarter, save cash, and keep your operation running smoothly.
However, without proper financial and strategic planning, even the most promising businesses can quickly close their doors due to poor financial decisions. This is why financial and strategic planning is the backbone of every successful business, especially those that are hardware-centric and procurement-heavy.
In this guide, we will discuss everything you need to know about financial and strategic planning, including what comprises a great financial plan, what comprises a good strategic plan, and the importance of financial and strategic planning in your business. By the end of this guide, you will understand how financial and strategic planning can help your company prioritize financial needs, reduce business risks, and build a competitive advantage over other businesses.
Additionally, we will introduce ControlHub, an all-in-one solution that can help automate some of the functions involved in financial and strategic planning, leaving you more time to focus on your core business.
What is Financial Planning?
Simply put, financial planning is analyzing your current business financials and projections for growth and then putting in implements to aid your company meet its goals through this. Financial planning also involves strategic financial management, which encompasses decisions about when are expenses recognized. This focuses on long-term fund management, taking into account the strategic perspective. By considering the timing of expenses, businesses can better align their financial strategies with their long-term objectives and ensure sustainable growth
What is Strategic Planning?
In the simplest terms, strategic planning is a systematic process used by organizations to set short, mid, and long-term goals and also determine the best way to achieve them. Strategic planning helps your business create a roadmap for which strategic objectives you should prioritize and which ones to put off for later.
Role of Financial Planning in Strategic Planning
Financial planning supports an organization's strategic plan by allocating resources, forecasting future financial performance, managing risks, and ensuring the goals are financially achievable. It aligns financial priorities with long-term objectives.
What Comprises a Great Financial Plan?
A successful financial plan, whether for a startup or an established enterprise seeking to expand, involves a couple of vital elements. These include:
Profit and Loss Statement
This is essentially an explanation of how your business made profits or incurred losses over a given period (often 3 months). To accurately come up with a profit and loss statement, you will need to determine your revenue/sales, the cost of goods sold (COGS), and the operating expenses. A robust purchasing software that automates purchase orders and purchase requisitions comes in handy for this.
Cash Flow Statement
This is just as important for your business as a profit and loss statement. It gives you an understanding of how much cash your business has made, where the cash is coming from, where it is going, and on what schedule. Once you establish this, you can then run a healthy business. A cash flow statement is usually prepared every month.
Balance Sheets
A balance sheet displays the financial position of your business at a particular time. This includes your assets, liabilities, and equities.
Sales Forecast
These are projections of how much you think your business will sell within a given duration. Your financial plan requires a sales forecast to be successful, especially if your business involves lenders or investors. However, there isn’t a one-size-fits-all sales forecast since every business has different needs. Find one that is tailored for your specific business needs and utilize it in your financial plans.
Personnel Plan
This is sort of a staff audit that determines the importance and necessity of each team member within your business. If you run a small business where you are a sole proprietor with no employees then this is not important. In the personnel plan, you should budget and prioritize the various departments. Determine which departments need some money allocated and which ones need budget cuts.
What's the Difference Between Purchase Requisition and Purchase Order?
In the buying process, purchase requisitions and purchase orders are steps that help businesses communicate what they need and how they plan to pay for it. A purchase requisition is an internal request. It's when someone within the company asks for the green light to buy something needed, detailing what, why, and sometimes where to buy it from. It's about getting approval before making a purchase.
A purchase order, on the other hand, is an external document sent to a vendor. It confirms the business wants to buy something, detailing the items, amounts, prices, and delivery info. It's a formal agreement to buy, laying out the terms of the purchase.
What Comprises a Good Strategic Plan?
A strategic plan sets the direction of your business and outlines what needs to be done to enable you to achieve these goals. A great strategic plan shows where your business is now, where you want your company to be in the next couple of years, how you will achieve this, and how you will measure success and determine if you are on the right course to achieving these goals.
The strategic plan will involve setting goals that are S.M.A.R.T (specific, measurable, attainable, realistic, time-bound), which is a more traditional goal-setting approach. A relatively novel approach to setting goals is using the acronym F.A.S.T which represents frequent, ambitious, specific, and transparent goals.
Depending on the nature of your business, the management can determine the best approach for setting goals in your organization. However, almost all organizations follow the pattern of setting goals, conducting analysis, formulating strategies, implementing these strategies, and finally monitoring and evaluating the strategies. There is no single approach that has been determined as the best way to conduct strategic planning but it’s easier to create a successful plan if everyone involved is on the same page.
Importance of Financial and Strategic Planning
Financial and Strategic planning plays an integral role in your business. A shocking statistic is that 86% of executive teams spend less than one hour per month discussing strategy while 95% of a typical workforce doesn't understand its organization's strategy. When you properly utilize these tools, you get an edge over the competition.
Through financial and strategic planning, your firm can align resources for optimal results. This allows you to prioritize financial needs and build a competitive advantage over several businesses that lack in these regards. Utilizing these powerful tools will focus your efforts and ensure that everyone in your company is working towards a common goal.
Venturing into and growing a business is inherently risky. Another important function played by financial and strategic planning is to help your company manage and reduce business risks. By analyzing possible risks, implementing risk control measures, eliminating uncertainty, and minimizing the impacts of these risks your company is on track to achieve greater heights.
The financial and strategic planning process drives your company's decision-making to prioritize the achievement of long-term goals. Your business is better suited to handle any challenges that might arise along the way. When efficiently utilized, these tools maximize the organization’s market value and the value for all stakeholders.
Getting Financial and Strategic Planning in Your Company
Financial and strategic planning are the backbone of every successful business, especially those that are hardware-centric and procurement-heavy. Many startups rely heavily on procurement to keep their supply chains moving, but without proper financial and strategic planning, they risk making poor financial decisions that can quickly lead to the closure of their businesses. Also, the use of a procurement software can automate most of the process.
Financial planning involves analyzing a company's current financials and projections for growth, then putting in place implements to help the company meet its goals. Strategic financial management is also a key element of financial planning, focusing on long-term fund management with a strategic perspective. Strategic planning, on the other hand, is a systematic process used by organizations to set short, mid, and long-term goals, and determine the best way to achieve them.
A successful financial plan for a startup involves several vital elements, including a profit and loss statement, a cash flow statement, balance sheets, a sales forecast, and a personnel plan. These elements help startups keep track of their financial position, where their cash is coming from and going, and how they are utilizing their resources.
A good strategic plan, on the other hand, sets the direction of a business and outlines what needs to be done to achieve the goals set by the organization. A great strategic plan shows where the business currently is, where it wants to be in the next few years, and how it plans to achieve its goals. Goals that are specific, measurable, attainable, realistic, and time-bound are usually set to provide direction.
Financial and strategic planning plays an integral role in any business. When properly utilized, these tools give a company an edge over its competitors, aligning resources for optimal results, and building a competitive advantage. By analyzing possible risks, implementing risk control measures, eliminating uncertainty, and minimizing the impacts of these risks, companies can manage and reduce business risks, making it easier to achieve greater heights.
ControlHub is an all-in-one solution that can help automate some of the functions involved in financial and strategic planning, giving startups breathing room and allowing them to focus on their core businesses without compromising quality. With ControlHub, startups have access to all data and analytics, enabling them to make more informed decisions. By tracking their current position and comparing it to where they would like to be, startups can take necessary actions and make the necessary adjustments as needed. Also take advantage of features like virtual cards and p cards.
P card vs Credit Card?
Credit cards allow users to make partial payments and revolve balances, on the other hand purchasing cards, or P-cards, require you to fully pay your balance each month. Their statements generally include more information than credit card statements and often eliminate the need to retain invoices.
In conclusion, financial and strategic planning are vital for the success of hardware-centric and procurement-heavy startups. A successful financial plan comprises several essential elements, while a good strategic plan sets the direction of a business and outlines what needs to be done to achieve the set goals. By utilizing these powerful tools, companies can align their resources, manage and reduce business risks, and build a competitive advantage, ultimately maximizing the organization’s market value and the value for all stakeholders.
What is the expense recognition principle?
The expense recognition principle, a core guideline of accrual accounting, dictates that expenses should be recognized in the period they are incurred, regardless of when the cash payments are made. This principle ensures that financial statements accurately reflect a company's financial performance by matching expenses with the revenues they generate. For example, if a company incurs costs to produce goods sold in a specific period, those costs are recorded as expenses in the same period the related revenues are recognized, providing a clearer picture of the company's profitability during that timeframe.
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