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Reinventing The Wheel: Best Practices To Transform Your Business Projections

At Apliqo, we’re very focused on the changing role of CFOs and FP&A. And while making reliable projections about a company’s performance has long been a key responsibility of finance executives and their teams, these projections are now more important than ever and need the collaboration of the whole organisation.

Today’s CFOs need to be much more than finance wizards; they need to embrace technology, know how to manage talent and, most importantly, be active business strategists. As Accenture put it, today’s CFOs need to be architects of business value. And the projections put together by your team will lay down the foundations to help you fulfil this challenging, exciting new role.

Unfortunately, I still see many businesses (both young and established) struggle to put together solid projections. Rather than using a strong financial core model to produce insightful analysis and actionable strategies, I still see many CFOs and finance teams stuck in Excel creating legacy projections they likely adopted in Accounting 101.

In our upcoming Masterclass, Jack Alexander will walk you through a comprehensive list of the FP&A best practices you need in order to transform your finance team from a group of accountants into a team of invaluable business strategists.

To give you a taste of what Jack will cover in his class, here are some of my top tips for producing better business projections:

Change the way your team sees FP&A

Transforming the way your team runs its projections requires more than just procedural change; it demands a profound ideological transformation. In order to kickstart positive change in your finance team and its operations, you first need to ditch the “accounting mindset” that has you and your team enslaved in Excel and the production of uninsightful legacy projections.

Be proactive and help your team see their role as more than just glorified accountants. Help them understand that the role of FP&A isn’t just about predicting results and reporting on the books; it’s about driving real value for the company and its stakeholders.

Adopt driver-based planning

Business executives dream of delivering promised results to investors. With the right approach to your planning and projections, you can help make that dream a reality.

Driver-based planning, when performed properly, is without a doubt one of the most effective tools in your FP&A toolkit. By honing in on the main drivers of your business, you and your team can build the foundation for actionable plans and strategies that drive real value for the entire company.

According to Jack Alexander, some key drivers of shareholder value you might want to focus on include:

  • Revenue Growth
  • Relative Pricing Strength
  • Operating Effectiveness
  • Capital Management
  • Cost of Capital

Ditch traditional single-point analysis

Unfortunately, too many companies continue basing their projections on traditional, single-point forecasts and trend analysis, most of which part from the assumption that the future will look just like the past.

If you’re serious about creating insightful analysis that can drive real strategic action and value for your business, you need to turn to more agile projections such as:

  • Scenario Planning: Scenario analysis allows us to consider multiple future scenarios and devise strategic ways of responding to them. Rather than restricting us to plan around a single, static forecast, scenario analysis lets us face uncertainty in a way that’s more realistic and valuable to our organization.
  • Rolling forecasts: Traditional projections have a fixed period of reference. Rolling forecasts, on the other hand, let us make more agile and informed decisions by automatically updating their predictions on the fly.
  • Long-range forecasts: Long range forecasts take a step back and present long-term plans to help company executives set out strategies that guide long-term investment decisions.

Strike the right balance between top-down, bottom-up planning

In my experience, most companies benefit from countercurrent planning that balances both top-down and bottom-up approaches. How you decide to strike this balance, however, will vary based on the nature of your business.

A solid countercurrent planning model usually boasts a combination of clearly defined stakeholder goals and a bottom-up response with departmental plans designed to achieve them.

Adopt a strong core model

Transforming your finance team into a group of active strategists is no easy task and will likely require you to make fundamental changes to your team, its operations, and even your core financial model. Be prepared to analyse the model you’re currently using and don’t be afraid to consider changing it to a model that better suits the nature of your business.

Join our exclusive Masterclass for more

The role of CFOs and FP&A have changed dramatically. To meet the challenges of these exciting new roles and start driving real value for your company, you and your team must ensure you are armed with the right tools and practices.

In our upcoming Masterclass on July 8th, Jack Alexander will take a deep-dive into the world of business projections; he’ll cover the best practices mentioned here (and many more) in detail, highlight use cases of these practices in action, share his own financial core model, and much more. Don’t miss out and save your seat here.