Financial Planning

Financial Planning is the ACTIVE process of reviewing and establishing a measurable plan for a period of time into the future.  There are many types of financial plans that can be established.  We’ll review the more common elements here.

Short Term, Mid-term and Long-term Planning – Every business should have established plans for at least these three time horizons. .  The different planning horizons are essential to establish the direction of your business.  For example, your long term plan is more about the strategy, direction and changes expected in the business over time, while the short term plan contains tactical steps and has established goals or milestones for at least each month of the year.

Unit Based Financial Plans – These are the most often used type of plans and are usually “top line” gross sales based, focused on achieving a certain level of sales $ or a number of units for a set period of time.  For example, “In the month of January we are going to sell 1,000 units of product ABC resulting in sales of $25,000”.  This example would be used if you had a promotion for product ABC and wanted to see it’s results separately.  On the other hand, if you wanted to focus toward increasing labor sales in general you would use something like,  “In the month of January we are going to achieve $100,000 in labor sales”.

Margin or Gross Profit Based Financial Plans – Because achieving changes in gross profit is a combination of good buying habits and your company’s sales policy, these type of plans most often involve purchasing staff, department or general managers, or owners.  An example would be something like “Improve the gross profit for product line AZ to 45% by the end of 2012”.

Expense Based Financial Plans – Good business management requires that the highest priority expenses have greater control.  Typically priority is placed on the highest dollar volume or highest expense related to its retail price items.  Expenses found in this category usually include items like freight, advertising and employee benefits.  I have found that if you are truly doing an aggressive job controlling costs you can alternate the emphasis on an expense type about once every three to five years.

Balance Sheet Plans – Honestly it has been rare for g2G to see a smaller size business’ set balance sheet goals.  However, considering the last several years overall business climate, it is time to start.   The primary item that has caused companies concern is a lack of cash.  So looking at your cash, inventory, receivables, and the balance sheet ratios the same way your banker does will keep little problems from becoming big problems.

Comments on Planning and Goal Setting – Some very important points to consider

  • When setting goals, the level of detail and the number of measurement points must be driven by management, supported by management’s actions, understood by everyone in the organization, and represent only the few critical items.  Establishing too many goals can lead to frustration and rejection by the staff.
  • Goals should help focus everyone to achieving the desired business results.  Achieving the results you want is a result of many other subordinate actions.  For example, the “… achieve $100,000 in labor sales”  above is really made up of many, many smaller steps.  e.g. having enough technicians, with the right skills, a facility to accomodate the work, advertising, investment in tools, etc.  If you, or your staff,  don’t know HOW to achieve the goal the end of the period will come, the goal will not be achieved and you’ll just move to the next month HOPING the sales will come.  If this is the case at your operation, g2G will recommend management set goals at a lower level to drive the actions that will get results.

When you are working with g2G, we will always establish plans specific to your business based on your priorities and resources.

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NOTE: g2G may post your question and answers to the related Blog or FAQ Section if, in g2G‘s opinion, it will benefit other site visitors.

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