Updated: Nov 29, 2022
Do you have bigger dreams for your social impact business? Are you thinking about scaling but want to be sustainable moving forward? You will need an accurate account of your business’s financial story to see what that says for the future of your business. That is what financial planning and analysis (FP&A) is all about.
Viviana Borzuchowski has comprehensive knowledge and experience in the role of FP&A when measuring the quality of a business model. She has worked with different business organizations for a long time, helping them implement financial management practices for sustainable growth. Viviana is a strategic manager at Jirav, a top-rated software company providing FP&A solutions to business organizations that seek to make an impact in the future.
The Challenge of Financial Clarity For Small Businesses
Small business owners tend to rely on historical financial data, especially balance sheets and income statements. They look at how their business is doing financially in the present and compare it with how they were doing financially some time ago, and they are satisfied with that.
That approach is understandable. Small business owners are so used to wearing many hats in their operations. They function as the CEO, sales manager, financial manager, and more. However, this inability to focus can result in an overwhelming lack of financial clarity about the future, preventing the business from scaling up to its potential.
This is why it is vital to educate small business owners about the relevance and practicality of FP&A. Viviana explains, “When you think about it, the blanket, the backbone of our economy is small businesses…so if we are able to provide small businesses the information they need to plan ahead, they are more likely to grow.”
While tracing the financial story of your business, you should also ponder the following questions:
- Which strategies benefit your cash flow?
- Can you use fewer resources? Do you need to invest more in resources?
- Is your business showing a trend of sustainable growth?
- What are your forecasted expenses and profit N-years down the line?
FP&A offers a solution to the lack of financial clarity among small businesses, and consequently, it also seeks to clarify the pros and cons of your business model.
How Financial Planning and Analysis Works
Knowing your business’s historical financial data is important, but it should not stop there. What if understanding your financial data through the years can also help you forecast what your business can achieve in the following years?
Viviana defines FP&A as “moving more from the historical general ledger data, which is transactional data, right, to future planning. This involves developing an active and dynamic financial forecast and cash flow model.”
To simplify, you can look at FP&A as a sort of visualizer. Do not look at the financial data of your business as mere data or numbers. Instead, view them as a picture of your business operations and performance. Develop an understanding of how your cash flow correlates with other movements in your business. Once you do, you can use that to make forecasts and set up practical plans based on those forecasts.
Everyone can have dreams for their business, but not everyone has a practical plan to get there. As Viviana says, “The key to growth is not just having a plan but really measure against it.” FP&A can serve as the measured bridge to getting there.
Jirav vs. Excel
An Excel spreadsheet might be enough to monitor and manage the financial data of a very small business. However, as your business grows, using Excel will cease to be sustainable — especially once you reach six or more figures.
Some common issues you might encounter with using Excel for financial management are:
- Maintenance difficulty
- Limited collaboration capacity
- Version control
- Data integrity
On the other hand, Jirav is more equipped to tackle these challenges. Moreover, since it is a cloud-based business planning software, it can do more than monitor your financial data. Its ultimate goal is to optimize clients’ cash flow so they can, as Viviana highlights, “build those models and the scenario testing to better design even what part of their business they should invest to be able to achieve that growth.”
Reasons Why Business Owners Struggle With Financial Planning and Analysis
FP&A is a dynamic and rapidly evolving field. It is a very useful tool, especially for small business owners who wish to create greater social impact in the future. Unfortunately, some business owners delve into it without understanding what is needed to maximize the tool’s potential.
What are some reasons business founders struggle with FP&A?
They Don’t Have Concrete Business Goals
The why is extremely important in a growing business. Why have you made your recent business and financial decisions? Why do you wish to expand and grow?
“If they don’t have clarity in terms of what they want, where they want to go, that is probably the major red flag, right?” states Viviana. Your financial data and forecast might seem to present many opportunities, but these are useless if you do not know your goals. You need a clear vision of what you wish to achieve. FP&A is a bridge to get there.
They Don’t Hire Fractional CFO Services
Small business owners tend to wear too many hats. However, no business can grow in revenue and impact without growing in people connection first. To make FP&A work, Viviana highly recommends you hire the services of a fractional Chief Financial Officer (CFO).
She argues, “We couldn’t do without experts in the field to really confidently accelerate the growth for these firms because we can’t do that without being able to measure the plans versus the actual.” You have the business plans and the financial data; let a CFO harmonize the two.
If you want to grow your team to take your business to the next level, a CFO could help you figure out your next best move. We want to help you make a sustainable impact on the world by maximizing your financial data. Schedule a discovery call with Profit Reimagined™ to help you cover your foundations and deepen your understanding of these concepts.