Financial Planning in the Unknown
Predicting the future is never easy, yet planning ahead is a key function for CFOs. From forecasting next year’s revenue to estimating expenses and allocating resources, CFOs work alongside business units to develop the financial underpinning to set a solid course for the business. Is division A or B likely to see increased sales? Do we need more engineering, marketing or operations resources? How do we balance needs against expectations for growth and anticipated challenges or changes in the business?
All of these questions are difficult to address with conviction in normal times, and the pandemic adds another stratosphere of uncertainty. In response, the most agile CFOs are developing a broader range of scenarios – defining additional possibilities for both near-in and longer-term time horizons, identifying potential actions the company can implement and keeping a close eye on exogenous events.
For this type of “stretched” financial planning, it is critical to start with a clear and comprehensive understanding of the current state of the business, with current data and a generally accepted market framework. There will be many opinions about what may possibly occur over the next 3 months, not to mention 3 years. Therefore, an essential component is shared understanding of the latest actuals – financials, facilities, HR, R&D, sales and marketing pipeline and operations – the “right now” baseline on which various financial plans can be based.
“There must be a single source of truth,” noted Kerman Lau, Workday Product Management. “This is not the time to be conforming numbers or relying on rogue spreadsheets. It is critical to have an integrated, reliable system as a basis for the financial planning process.”
Senior finance leaders recognize that they cannot control outside events, and they cannot know in advance which scenarios will come to fruition. But with a commitment to ensuring accurate numbers today, a planning process that identifies scenarios and attaches financial implications, and the flexibility to pivot as needed, companies can more effectively manage through the unknowns.
Given the uncertainties of tomorrow, starting with a solid understanding of today, is critical to success, and is the basis of enabling finance executives to continue to serve as collaborative partners with the various business units.