Financial Planning and Analysis Guide: Tools, Quotes, and Resources

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A financial planner meets with a client.

The difference between a well-run and poorly run business involves how well the organization anticipates, avoids, and prepares for the inevitable bumps in the road — and how well it responds when financial trouble strikes.

A wealth of financial planning and analysis insight is available that provides valuable guidelines, techniques, and resources. With a comprehensive financial plan in place, an organization is better prepared to weather the inevitable and unforeseeable challenges and misfortunes that can stand in the way of its success.

What Is a Financial Planning Process?

Every business requires a financial plan that addresses its specific circumstances, which means no two financial plans will be identical. The   (AFP) describes a three-level approach to the financial planning process based on the size and maturity of the business.

Financial Planning Process Levels

Financial Planning Process Level 1

This level centralizes all financial planning and analysis, such as budgeting, forecasting, and financial modeling, for the Chief Financial Officer (CFO). Financial analysts often work with specific managers in the different business units, but they often lack the capacity to provide decision support and advanced analytics to all departments. This limits the usefulness of this approach to small companies’ accounting and treasury operations.

Financial Planning Process Level 2

This level embeds analysts from the finance department into business units to help managers make business decisions more quickly. This builds stronger relationships between financial analysts and the business’s leaders while also enhancing the business knowledge and expertise of members of the finance team.

Financial Planning Process Level 3

This level deploys teams of financial planners and analysts and divides the finance operation into three organizations: a shared service center (SSC) manages daily activities; a center of excellence (CoE) serves as a centralized business support group that supplies standardized and ad hoc analytics; and an embedded group of financial analysts offers advice and decision support by working side-by-side with business managers.

What Are the 6 Steps of the Financial Planning Process?

Financial Planning Process Step #1: Define the Process Taxonomy

Identify the services and activities the finance department currently offers to business managers, as well as those the department should provide in the future (unmet needs).

Financial Planning Step #2: Decide Where to Perform the Work

This may be at the department level, a centralized finance location, or a consolidated CoE that promotes standardization and economies of scale.

Financial Planning Step #3: Define the Interaction Model

The model will serve as the communication protocol with business units. For example, business managers may submit reports to the CoE and receive decision support from the CoE in exchange.

Financial Planning Step #4: Define the Roles and Responsibilities

This includes the duties that will fall to members of the finance department and those that will be performed by business departments. Duties are reassigned as financial planning processes are restructured.

Financial Planning Step #5: Define Requirements for Skills and Talents

As the business grows and more financial planning responsibility shifts to business units, the requirements ensure that junior financial analysts have a career path and ample opportunity to develop the skills to be effective partners with business managers.

Financial Planning Step #6: Determine the Optimal Size and Structure of the Financial Planning Process

The process is based on the efficiencies that can be realized by establishing a CoE that enhances partnerships with business managers. Automating low-value, repetitive tasks provides financial analysts with more time to focus on work that returns more value to the organization.

Definitions of Processes

CFO Selections identifies the three elements of financial management as the finance team, the finance processes, and the finance systems. Financial management processes tie the team and the systems together to ensure all three elements are aligned with the company’s financial goals.

A small firm’s financial planning processes may emphasize cash flow and debt management, for example, while a larger organization will likely focus more on resource deployment and asset acquisition.

Business financial planning and analysis largely involves four primary processes.

  • Financial reporting includes monthly, quarterly, and annual reports to business managers inside the company and investors and others outside the firm. These reports support decision-making by internal stakeholders, demonstrate to external stakeholders the stability of the business, as well as display its compliance with government reporting and tax regulations.
  • Planning and forecasting are intended to enhance the efficiency and profitability of the business by matching investments and operations with cash flow.
  • Managing risk reduces the potential liability the company may face not only from casualty and fraud, but also due to poor financial and resource planning. Key performance indicators (KPIs) include gross profit margin, operating profit margin, net profit margin, current ratio of assets to liabilities, and working capital.
  • Exerting control over financial resources helps ensure financial resources are being protected and used as efficiently as possible. This process involves examining the accuracy and enhancing the security of financial transactions.

Benefits of Effective Analysis

According to CFO Selections, bad business decisions are the primary reason why 90% of all businesses fail within 10 years and 60% close within three years. Owners and managers fail to consider the consequences of their actions on the company’s financial health. Financial management must include all aspects of the business, because every component and operation impacts its financial health.

These are some of the rewards of good financial planning and analysis:

  • Management operates proactively rather than reactively
  • Operations run more efficiently, which contributes to profitability
  • Sound financial planning makes it easier to receive financing and borrow money
  • Financial planning data is available to prospective investors
  • Business managers can make better decisions when they have timely and complete financial reports at their disposal

Tasks typically performed by financial analysts include the following:

  • Tax planning
  • Planning investment in fixed assets
  • Determining accurate and reasonable sales goals
  • Maintaining short-term working capital to support ongoing operations
  • Boosting profit margins by controlling costs and expenses, and by pricing correctly
  • Shaping employee benefits
  • Conducting sensitivity analyses to manage uncertainty in mathematical models

Financial Planning and Analysis for Different Organizations

Financial planning must be linked with operational planning to go beyond simply predicting desirable results. It must also present a comprehensive plan that serves as a blueprint for the company to achieve those results.

When Strategic Finance surveyed 734 firms to determine those with the most effective financial planning and analysis operations, it identified 12 principles of best practices. These best practices are framed by a three-part decision-making platform.

  • Plan: Annual operating plans, budgets, head-count plans, long-range plans, and two forms of financial modeling (what-if analysis and scenario analysis).
  • Execute and monitor: Reporting and analysis includes operational reporting, financial reporting, key performance indicators, dashboards, variance analysis, and drill through/roll up/drill across.
  • [Re]assess: Forecasting includes rolling forecasts, trend analysis, and predictive analysis.

Companies that adhere to best practices in financial planning and analysis are noted for their agility in responding to financial and operational challenges. They use variance analysis to determine the reasons for shortfalls so they can explain to managers and investors what happened and what the company will do to adapt.

These organizations also understand the importance of establishing operational goals as well as financial goals. They identify the key drivers of their success and codify those drivers so they can more accurately measure their progress in meeting their targets.

One best practice that many organizations fail to appreciate is establishing effective working relationships with managers and others in the company who work outside of finance and accounting. To be effective, financial analysts must have a solid understanding of the specific area or operation they are supporting. That understanding helps financial analysts earn the trust and respect of their colleagues in those areas.

Financial Planning Quotes

Top-flight financial training and skills alone won’t ensure a career in financial planning and analysis. Success depends just as much on having the right frame of mind and a positive but realistic approach to the up-and-down world of finance.

Financial analysts can benefit greatly by heeding the sage advice of world-renowned financiers and great thinkers of yesterday and today. Here are some insightful financial planning quotes and how they relate to business climates now and in the future.

”Financial fitness is not a pipe dream or a state of mind. It’s a reality if you are willing to pursue it and embrace it.” — Will Robinson          

For businesses and individuals alike, financial planning comes down to having money available to meet needs whenever they arise. Much of financial planning and analysis is simply avoiding financial vulnerability. One such vulnerability is not having enough money to cover expenses when a source of income is interrupted, expenses increase unexpectedly, or credit dries up.

”Know what you own and why you own it.” — Peter Lynch            

Having a complete and accurate list of a company’s financial assets is not enough, because such a list alone doesn’t provide decision-makers with all the information they need to ensure the firm is making steady progress toward its financial goals. Financial analysts must understand why each asset is being held now, and whether it makes sense to own the asset in the future.

”Good business planning is 9 parts execution for every 1 part strategy.” — Tim Berry           

Devising a financial strategy can be as easy as telling a story about someone who finds the solution to a problem by using the firm’s products. It’s more difficult to establish milestones for implementing that strategy in a way that fits well with the organization’s processes and operations. And most difficult of all is managing the daily routines and making the minor course corrections that convert the strategy from ideas into actions that contribute to achieving the company’s goals.

”Someone is sitting in the shade today because someone planted a tree a long time ago.” — Warren Buffett             

While at first this quote can seem to relate to the kindness of forward-looking strangers, from a financial planning perspective, it highlights the importance of being proactive ― of acting prudently before all the consequences of the action are understood. Financial planning and analysis often focus solely on the immediate future and on timeframes that are measured in months or quarters.

However, some of the most important work will not bear fruit for years to come. That work will benefit the organization, its employees, and its customers in ways that are impossible to predict. Financial planning entails an element of hope and faith that today’s wise business decisions will continue to have positive impacts far into the future.

”Planning is bringing the future into the present so you can do something about it now.” — Alan Lakein               

This quote is similar to the famous saying attributed to computer pioneer Alan Kay and others that “the best way to predict the future is to invent it.” The sentiment that many financial analysts take from the quote is the importance of acting now to affect the future in ways that will best serve the company’s goals and interests. In a way, financial planning is an attempt to bring a possible future into the present, and perhaps speeding up the process of realizing that possible future.

”Our goals can only be reached through the vehicle of a plan in which we must fervently believe, and upon which we must vigorously act. There is no other route to success.” — Pablo Picasso           

Believing fervently in a financial plan can be difficult in light of the many variables and unknowns that financial analysts must embrace. However, it is easier to have faith in a financial plan when it is well thought out and created deliberately. Part of the faith entailed in financial planning and analysis springs from the knowledge that every plan will ultimately be adjusted as conditions change and priorities shift.

”Invest in yourself. Your career is the engine of your wealth.” — Paul Clitheroe             

When financial analysts invest in themselves by continually striving to learn new skills and enhance existing ones, they also benefit their organizations. Just as a business must have a comprehensive plan for its future, professionals must plan for their own future growth and career goals.

Many financial analysts fail to appreciate the value of investing in their own training, but not doing so is a primary reason why so many financial careers plateau. Financial analysts should always consider their current role as a springboard to higher levels of their profession.

Financial Planning Tools and Resources for Businesses and Organizations

Financial analysts do more than simply rely on technology. They have become technologists themselves. They deliver the benefits of predictive and prescriptive analytics and other advanced financial planning tools to their organizations’ senior officers and business managers.

Software vendor Vena Solutions explains that financial planning and analysis software now offers real-time reporting, centralized cloud-based databases that improve accuracy, and self-service dashboards that are customizable and easy to use.

Following are some of the most common uses for financial planning and analysis software, services, and resources.

Acquiring and Maintaining Capital

  • Financial capital is the lifeblood of any business, whether in the form of assets, securities, or cash. From a financial planning and analysis perspective, acquiring and maintaining capital requires finding the optimal balance between debt and equity, which are the two common forms of capital, as Investopedia
  • The U.S. Small Business Administration’s Business Guide presents the funding options available for business owners, beginning with techniques for determining how much capital the business needs to raise.
    • Self-funding, also called bootstrapping, entails relying on the owner’s capital, such as cash from savings or a retirement account. While this form of acquiring capital gives the owner complete control, it can be expensive if costs aren’t controlled or tapping retirement funds involves fees or penalties.
    • Capital raised from investors in exchange for a share of ownership, and sometimes a management role, allows the company to grow quickly and avoid taking on debt, but owners lose some control over the operation.
    • Business loans allow owners to retain full control in exchange for having to pay interest on the outstanding amount along with repayment of the principal. To qualify for a loan, the business should have a business plan, expense sheet, and financial projections for the next five years.

Budgeting, Billing, and Payroll

  • Budgeting and forecasting software improves the accuracy of financial plans by automating many data collection processes. This reduces errors resulting from manual data entry, as Software Advice Automation also benefits billing and payroll projections created by an organization’s financial analysts.
  • Financial software vendor AssessTEAM lists the key performance indicators that are most important to financial analysts who are working on reports and forecasts relating to budgeting, billing, payroll, and other accounting operations.
    • Budgeting and forecasting deals with cash forecasting, budget production, budget iterations, budget line items, and budget variance and adjustments.
    • Billing (accounts receivable) encompasses calculating outstanding sales, average days from invoice to full payment, cash conversion from merchandise to final sale, billing error rate, active customer accounts, and payment types (checks, electronic funds transfer [EFT], wire transfers, etc.)
    • Payroll functions include calculating compensation as a percentage of total business expenses, payroll taxes as a percentage of total revenue, payroll form error rate, and payroll process changes cycle time. Financial analysts also monitor checklists for functions such as check processing, tax administration, and business unit accounting.

Investments and Revenue

  • Financial analysts who are charged with managing their company’s investments need tools that help them devise strategies in the short term and long term for acquiring and disposing of financial assets and other investments.
  • Investopedia describes the duties of investment managers as including asset allocation, financial statement analysis, stock selection, and investment monitoring. The assets that are managed include bonds, equities, commodities, and real estate.
  • Revenue management from a financial planning and analysis perspective entails the use of analytics to optimize the price and availability of products based on predictions of customer behavior, as RevFine
  • More broadly, revenue management applies data analytics to inform business decisions with the goal of increasing revenue generated through the sale of the same amount of products and services.

Retirement Planning

  • Financial professionals who offer retirement planning services help their clients determine the amount of money they will need to fund their retirement. They also explain the steps their clients must take to raise sufficient retirement funds from savings and investments. Investopedia describes several aspects of retirement planning that often involve financial analysts.
    • Converting home equity into a retirement asset
    • Planning distributions from an estate, especially with regard to tax implications
    • Ensuring that retirement funds are taxed as efficiently as possible when they are distributed
    • Buying insurance to protect assets and prepare for medical expenses

Managing Debt

  • Often the difference between success and failure for a business is how well it manages its debt. A common tool used by investors to determine the risk of a corporate investment is the debt-to-capital ratio, which is the total debt of a company compared to its total capital (debt financing and equity). Investopedia explains that a ratio of 0.5 or less indicates the company is on sound financial footing, while a ratio of 1.0 or above means the firm is technically insolvent.
  • Financial analysts help companies reduce their debt-to-capital ratio and improve their chances of attracting investors. They do this by enhancing a company’s inventory management, restructuring its debt, and taking other steps to boost profitability. In practice, several such steps are taken at the same time, often accompanied by price increases or cost reductions, depending on market conditions.

Financial Planning Becomes a Competitive Advantage

Companies that fail to capitalize on the latest technologies for financial planning and analysis risk falling behind the competition. Keeping pace with advances in artificial intelligence (AI) and innovative data analytics techniques requires that finance professionals continually update and refresh their skills.

Financial professionals and financial plans that leverage the best tools and methodologies place themselves in a better position to thrive in times of transformation. They are also better equipped to be more agile, opportunistic, and prepared to overcome obstacles rather than fall victim to them.

Additional Resources:

American Express, “7 Financial Tools Every Business Should Consider”

Elite Road Warrior, “How Planning Can Bring the Future into the Present”

Investopedia, “Top 5 Software Programs Used by Financial Advisors”

NerdWallet, “The 7 Best Budget Apps for 2020”

Oracle, “Start Now with Oracle Student Financial Planning”

Village HopeCore, “Financial Fitness; Pursuing It, Embracing It”

Young, Fabulous & Self-Employed, “5 Common Business Struggles Every Entrepreneur Will Face”