No matter how long you’ve been in business, today’s highly competitive landscape can change quickly. Between advanced digital tools, making the right strategic moves, and developing the right products or services for your customers, your target market can shift dramatically from one month to the next.
That’s why making informed strategic decisions must be based on data analysis of your finances. You can gain valuable insights that can help them make the right future-focused decisions.
This step-by-step guide will explore how to leverage your business’s financial data to drive strategic decision-making that creates stability and growth.
1. Start With Your Current Financial Position
Begin by taking a deep dive into your current finances. Understand what drives your income statement, balance sheet, and cash flow. Run each of these reports monthly.
The income statement reveals the profitability over a specific period, providing insights into revenues and expenses. The balance sheet gives a snapshot of the company’s assets, liabilities, and equity, illustrating financial stability at a particular moment. Meanwhile, the cash flow statement tracks the inflow and outflow of cash, highlighting how well the company manages its liquidity.
Analyzing these reports showcases the strong and weak points of your business. You can see what needs immediate attention or strategic intervention. At this point, the main goal of strategic planning is to mitigate and manage risk.
2. Identify Key Financial Indicators & Benchmarks
Financial indicators vary depending on your industry sector and organizational aims, but they all indicate how strong your company is overall. Critical indicators include revenue growth, which reflects the business’s ability to increase its income over time, and profit margins, which measure the efficiency of converting sales into actual profit.
Liquidity ratios are essential for assessing the company’s capacity to meet short-term obligations, indicating financial health and operational efficiency. Another pivotal metric, return on investment (ROI), evaluates the profitability of investments and expenditures, guiding strategic investment decisions.
Your current key financial indicators allow you to establish benchmarks ahead of setting goals as part of your financial planning. Benchmarks are how your growth will be determined and measured, whether they are industry averages, competitor performance, or your own company’s historical data.
3. Define Specific Goals Based on Benchmarks
Articulate clear, strategic goals for your company based on the benchmarks. For example, you want to grow revenue by 20% in one year. That is certainly an achievable mark. Then, you need to dive into the details of how your company will achieve this goal. Do you need to hire more help? Do you need better equipment? How many more orders do you need to come in? How will that extra revenue increase your profits? Can you scale back certain products or services while focusing on the top sellers?
Answering all of these questions requires an in-depth understanding of various parts of your business model. However, you still need to make decisions and set reasonable goals based on your current data and your progress month by month.
4. Develop Scenario Planning and Forecasting
Scenario planning and forecasting are critical methodologies for leveraging business financial data toward visionary decision-making. Scenario planning happens when you map out potential futures, each built upon distinct assumptions and variables. The goal of scenario planning is to mitigate uncertainty. The more scenarios you develop, the better you can navigate any changes. Of course, robust scenario planning and project planning software can help.
President Dwight D. Eisenhower said, “Plans are worthless, but planning is everything.” You can’t possibly plan for every scenario as you move toward your goal. But you need to have a framework for what to do when, not if, something doesn’t go according to your plan. Planning for emergencies, staffing changes, windfalls, setbacks, and delays is crucial to being fluid enough to handle anything that changes from setting benchmarks to reaching the goal. Can your company weather a delay by one month? How would someone leaving your company affect your end goal? What if sales don’t meet expectations?
Forecasting, in contrast, extends the analysis of historical financial trends to project future financial states. This predictive technique is anchored in data analysis and offers a foresighted view of potential financial outcomes.
You must meld scenario planning and forecasting to see what happens after specific timeframes. For example, you need sales to increase by 35% to reach a revenue increase of 20% annually. But what does that revenue figure look like if sales increase just 30%? Once more orders come in, you need to increase production. What happens if you can’t hire enough people? Do you offer overtime to current employees? If enough people can’t work overtime, do you hire temporary workers from an agency? What are the tax implications of overtime and temp workers? How will these moves change your profit margins?
As you can see, strategic planning involves many elements. That’s why monitoring incremental results is critical to moving forward.
5. Implement Strategies and Monitor Results
Next, it’s time to take action. Set your plan into motion to begin moving toward your goal. As you move through the strategy, note various benchmarks and timeframes. You can adjust as needed because these actions are not set in stone. However complex or straightforward, your plan should be agile enough to pivot based on market forces and events beyond your control.
Tracking key performance indicators (KPIs) is essential. This encompasses not only the financial metrics previously identified but also operational and market-based indicators that influence financial outcomes. We highly recommend QuickBooks Online (QBO) as the best financial planning software on the market today.
Another thing to note is that getting your entire team on board for this strategic plan is vital. Involve them in the revenue-building process. Get their ideas. They’ll feel a sense of empowerment over the outcome.
6. Partner With an Expert
You want to focus on your core business model. However, strategic planning can be a laborious yet worthwhile process. Partnering with an objective third party offers a way to take some of the burden off you and your staff while giving you impartial advice on how best to grow your company.
Contact the business professionals at The Whitlock Co. to request a consultation today. We’re happy to help your company grow!
