What is the Purpose of Projected Financials in a Strategic Plan?
This one might be obvious. After tackling planning, you will need to know if your revenues can support your expenses. You will also want to know how close those two items may be. Depending on your level of comfort with risk, you want those to be further and further apart. Honestly, even if you are not conservative when it comes to risk, you will still want those to be as far apart as possible as we would all like more revenues. When looking at financials for a strategic plan, we tend to look at things on a cash flow basis. If a client truly desires it, we will build in a projected income statement and balance sheet, but for the purposes of the strategic plan, we generally feel that you need to know if you can fund your operations.
Pro tip: We want to see at least a 10% surplus on an annual basis for comfortability, consider that surplus as a risk factor in determining your comfort level with your budgets.
What you need to look at when developing your projected financials is quite simple, and yet, it scares off many people. Sometimes this requires inputs from a lot of groups and sometimes the consultant or your financial leader can put this together. When looking at projections, here are a few areas where outside input can be of help:
Revenues - Especially if you are launching a new line, remember it takes time to scale. Even if you believe you will sell 1,000 widgets or gain 1,000 members, that typically takes time to reach your targets, talk to your sales/development team about what that timeline looks like.
Expenses - Every organization is different, both in what your expenses are, as well as who is in charge of them. Some organizations take this down to a manager-level role for certain expenses empowering their employees to “own their own budget.” Others keep it at a higher level believing that they are “allowing their employees to focus on their work.” There is no right answer here, but factor your own organization’s roles, responsibilities, and beliefs into your expense budgeting. If your organization allows managers to “own their own budgets,” then don’t just assign this to them in the strategic planning process. Actually, work with them on it.
New hires - what are the going rates for these positions? Fortunately, it is becoming easier and easier to find these salary ranges in your community. Glassdoor is a great tool, but there are many other resources out there that can provide relevant information. It is also important to remember that new hires are not a turn-on process, meaning that it may take some time to find the right person and onboard them so factor that timing into the hiring process.
Raises - typically, the best group to talk to about this is the board of directors, especially if there is a compensation committee or a group responsible for compensation. You are not looking for input on individual raises, but what type of percentage should be budgeted on an annual basis, some boards will say the cost of living (typically 2-3%) whereas others will utilize other factors such as judging if current salaries are at or below market rates and factor that into annual budgets.
We typically look at projected financials in two formats, first, what do the next twelve months look like on a month-by-month basis, and second what do the next 3-5 years look like on an annual basis. The 3-5 years is dependent upon the planning more so than anything else. It is also important to remember that the further out you get, the less accurate your projections will be. This is one reason why updating your strategic plan on an annual basis is a good idea. It will improve your predictions rather than causing you to rely on inaccurate information. Alternatively, the further out you get, the more high level you may want to get with your projections as specifying detailed categories will become harder and harder.
Find our whole “Purpose of” series here:
You can also download our sample/template Strategic Plan Request for Proposal for free here, no sign up or anything necessary: Strategic Plan Request for Proposal Template
Need help developing your plans? Need help organizing and understanding the projected financials to support your plans? Here, at NMBL we can approach both challenges with the comprehensive and informative insights explained above. Reach out to NMBL Strategies today to securely plan your future.
