Strategic Finance: Planning Your Business's Path to Success

Once you have a firm grasp of your historical financial data through accurate accounting and a clear understanding of your financial statements, the next step is to look forward. This is where financial planning and analysis (FP&A) comes into play, and where you can transform raw data into a strategic roadmap for your business.

Your Financial Plan Is Your Business Plan

Often, people separate "the financial plan" from "the business plan." However, a truly effective financial plan is not a standalone document; it's a direct reflection of your overarching business strategy and goals. It's about how you intend to allocate your resources – your cash, your people, your time – to execute that strategy and achieve your objectives. Your financial plan provides the practical roadmap to success.

Consider this wisdom: "If you don't know where you're going, you'll end up somewhere else." This applies directly to business. You need a plan to guide your daily actions and help construct the building blocks toward your future.

It's important to note that unexpected challenges and opportunities will always arise. However, the plan serves a vital purpose: It reminds you of your goals and acts as an early warning system when you deviate off course. Many founders, after raising significant capital, might begin spending without a clear strategy. A well-defined plan helps you stay disciplined and keeps every dollar spent aligned with long-term goals.

A financial plan can take different forms, each serving a distinct purpose:

Budget:

This is typically a more detailed, operational plan for a single year. As a company grows, budgets may require board approval and can even be linked to performance accountability for management. It usually forms the first year of your broader forecast.

Forecast:

This is a longer-term, more strategic outlook, often spanning three to five years. It's generally less granular than a budget and should be updated regularly to reflect changing market conditions and business performance.

The Power of Scenarios: Best, Base, and Worst Case

A robust forecast includes multiple scenarios to prepare for various eventualities:

1. Best Case: This is your optimistic outlook, the scenario you'll likely share with investors, outlining your most ambitious growth targets.
2. Base Case: This represents your most realistic expectation, guiding your day-to-day operational decisions. It's what you genuinely believe will happen.
3. Worst Case: This is critical and often overlooked. While founders need to be optimists and believe fiercely in their vision, it's essential to dedicate time to developing a worst-case scenario. What if sales fall short? What if costs skyrocket? Having a plan for adverse conditions ensures you're not caught off guard and have a contingency strategy ready.

Using "drivers" in your plan allows you to play out hypothetical scenarios. What if tariffs impact your supply chain? What if you secure national distribution with a major retailer and need to ramp up quickly? By modeling these possibilities, you can identify which factors are most critical to your success and prioritize resource allocation accordingly. This helps differentiate between "must-have" initiatives (e.g., a critical line extension) and "nice-to-have" investments.

The Planning Process: Inputs, Creation, and Ongoing Monitoring

Financial planning is a dynamic cycle with three key phases:

Phase 1: Inputs

Gather all available data, including historical financial information, unit economics trends, competitive analysis, total addressable market (TAM) insights, current economic climate (inflation, tariffs), existing cash and capital, and consumer data. This represents what you currently know and can realistically touch.

Phase 2: The Plan

Define your strategic direction. Where do you want to go? What's your pricing policy? Who do you need to hire? Always try to back up your assumptions with facts. While some assumptions will be aspirational, keep them realistic enough to stand up to scrutiny. For instance, if you're receiving support from resources like advisors or business mentors, leverage them to solidify your unit economics and develop your comprehensive three-year plan, including your hiring and marketing strategies.

Phase 3: Ongoing Monitoring 

This is perhaps the most crucial step. After investing time in understanding your history and building your strategic plan, the work shouldn’t stop there. Regularly perform a variance analysis,   this serves as an early warning system, signaling when you're off track. For example, if your gross margin is consistently lower than budgeted, it's a clear indicator that you need to re-evaluate pricing, costs, or sales strategy. This consistent review allows you to re-navigate and adjust your course to get back on track.

At EisnerAmper, we believe your financial plan is a living document, that continually guides your business toward its intended destination. Our team strives to deliver high-quality services across industries to best serve you and your business. With solutions rooted in strategy, innovation, and transparency, we create tailored solutions to enhance your business. Learn how we can help you. Contact us below.