by CA Hardik Ramani
2024-12-12
Annual planning — when executed properly — is one of the most powerful exercises a business will work on throughout the year.
But how should you approach it? For many, it’s a quick look back at the past year, followed by building forward projections based on a slight improvement.
In other cases, it starts with a vision of where you want to go and then builds goals toward that vision.
At PlotPath, we are passionate about this process, because it’s where goals and reality meet up. It’s an opportunity to take those goals, and build a true road map to achieving them, while also getting practical about what it will take to get there.
Taking the First Steps Toward Powerful Annual Planning
The challenge for many is that alignment never happens. We’ve seen it countless times: Businesses make goals, build a budget, and then completely abandon their plan once the year gets going.
To get this right, you need to work through some crucial questions before you define your goals.
In this post, we’ll break down 7 questions you should be asking your CFO before engaging in annual planning.
What were our measurable financial achievements and challenges in the past fiscal year?
Understanding your company’s recent financial history is crucial for making informed decisions about the future. Ask your CFO to provide a comprehensive overview of the past year’s financial performance, highlighting successes and areas needing improvement. This question will help you identify trends, learn from past experiences, and set realistic goals for the coming year.
How does our financial performance compare to our previous projections and industry benchmarks?
Comparing your actual performance to your projections and industry standards can provide valuable insights into your company’s competitive position and financial health. Your CFO should be able to present a detailed analysis of how your business measures up, including critical metrics such as revenue growth, profit margins, and return on investment. This information will help you gauge your company’s progress and identify areas where you may need to adjust your strategies.
What are our company’s most significant financial risks and opportunities in the coming year?
In today’s rapidly changing business environment, staying ahead of potential risks and capitalizing on emerging opportunities is essential. Ask your CFO to outline your company’s financial exposure, such as market volatility, regulatory changes, or economic uncertainties. Additionally, discuss potential opportunities for growth, expansion, or cost savings that could positively impact your financial performance.
Can you provide an overview of our current cash flow situation and projected liquidity for the next 12-18 months?
Cash flow is the lifeblood of any business, and understanding your company’s liquidity position is crucial for making informed decisions about investments, expansions, and day-to-day operations.
Your CFO should be able to present a detailed cash flow forecast, highlighting any potential cash crunches or surplus periods. This information will help you plan for capital expenditures, manage working capital, and ensure your business has the financial resources it needs to thrive.
Ask your CFO to recommend how to best allocate your company’s financial resources. This may include discussing reinvesting in the business, pursuing acquisitions, paying dividends, or implementing stock buyback programs. Your CFO’s insights should follow a thorough analysis of your company’s financial position, growth prospects, and strategic objectives.
How do you foresee changes in interest rates, inflation, or other economic factors impacting our financial strategy?
External economic factors can have a significant impact on your business’s financial performance and strategy. Engage your CFO in a discussion about how potential changes in the economic landscape might affect your company.
This conversation should cover topics such as the impact of interest rate fluctuations on your debt structure, the effects of inflation on your pricing and cost management strategies, and how global economic trends might influence your industry.
What key performance indicators (KPIs) should we focus on to measure our financial health and progress towards our goals in the coming year?
At PlotPath, we believe in the power of defined KPIs to drive business success. Ask your CFO to recommend a set of KPIs that will provide the most meaningful insights into your company’s financial health and progress.
These metrics should go beyond traditional financial statements and offer a more granular view of your business’s performance. Your CFO should be able to explain how each KPI relates to your strategic objectives and it will directly impact your goals.
By asking these seven questions, you’ll understand your company’s financial position and outlook comprehensively, enabling more informed decision-making during the annual planning process. Remember, the goal is not just to review past performance but to use that information to plot a path for future growth and success.
Fractional CFO Services for Strategic Annual Planning
At PlotPath, we specialize in providing the financial tools and insights you need to make weighty business decisions. Our team of experienced professionals takes a metric-driven approach to help you understand your business at the most granular levels. We go beyond traditional financial statements to provide you with the next level of detail you need to truly understand how your business is performing.
As you prepare for your annual planning discussions, consider how a partnership with PlotPath could enhance your financial strategy and decision-making processes. Our fractional CFO services, customized financial reporting, and bookkeeping essentials can provide the comprehensive financial support you need to take your business to the next level.
Don’t settle for looking at what your business did last month. With PlotPath, you can see where it’s going next and make the strategic decisions necessary to drive growth, improve profitability, and achieve your long-term goals. Contact us today to learn more about how we can help you plot your path to success.
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