| Even Small Businesses Need to Understand Financial Planning and Analysis to Grow

Posted in Finance at 9:00 AM by Loftis Consulting

Many business owners mistakenly believe if they open a business customers will automatically come and the business will just grow because of the great service or product that is provided.  This is just not the case. Many factors go into not only building a great business but growing it as well.  One thing that helps large businesses grow is financial planning and analysis (FP&A) which a lot of the smaller businesses lack because of affordability issues or a lack of understanding of FP&A’s role in a company’s success.

What is Financial Planning and Analysis (FP&A)?

FP&A provides the “why” factor in company financial performance.  The financial statements such as the Income Statement tell you the financial results for a period of time but not why the business performed a particular way. This is where analysis of the Income Statement and other financial statements come in.  The FP&A piece is critical to improving business performance.

 

How Can Financial Planning and Analysis (FP&A) be used in the business?

There are many ways that FP&A can improve performance.  Below are some examples.

  • Inventory Management – Analyze sales of inventory each month to determine the items that are selling best as well as to what slow items to get rid of to free up cash. Can also be used to develop add on services and/or products to increase sales.
  • Department Analysis – Analyze sales and expenses by department to determine profitability by product and department to guide you to achieve higher profits.
  • Make or Buy Analysis – Help to determine if a product should be made in house or purchased for resale to increase profits and/or improve operating efficiencies

Another way FP&A can help your business is through budgeting and forecasting.  A budget is the plan based on some key assumptions at the time the budget was created. A forecast updates the budget based on new information that occurs each month to give the business owner a better picture of how things are going.  FP&A analyzes the differences between actual results and the budget and/or forecast so that real time decisions can be made to keep the business on track.  This step is key for the business to survive in the long-term.

If your business isn’t hitting its targets or does not have a plan in place, give Loftis Consulting a call at (312) 772-6105 to put financial planning and analysis in place for your organization.  To learn more about Loftis Consulting visit us on the web at LoftisConsulting.com.

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