Why Proactive Planning is More Important Than Ever

The COVID-19 pandemic is causing many finance and accounting executives, including your clients, to rethink their budgets, implement cost-saving measures, and reinforce their budgeting and forecasting, with a focus on proactive planning. Proactive planning is the process of budgeting and re-forecasting based on real-time operational data and market dynamics. It involves visualizing the path the company wants to take, determining what will be required to meet those goals while looking at different scenarios related to the current business environment, monitoring progress in real-time, and making adjustments along the way. This takes budgeting and forecasting to a new level.

Let’s focus on how you can help your clients with proactive planning and some of the prerequisites required for this process to be successful. First, the company must implement a driver-based financial planning software with “what-if” scenario modeling capability. The financial planning system will need to integrate with the accounting system to actively monitor actuals versus plan. The team will need the ability to react and adapt to changes in real-time. And finally, frequent forecasting will be required.

Now let’s look at the three key elements of proactive planning: visualizing, monitoring, and adjusting.

Visualize

The first step is visualizing where the organization wants to go and what it will take to get there. Starting and running a business is like scaling Mount Everest. There are multiple base camps along the way, and it is critically important to plan how to get to each one and consider multiple scenarios. We recommend your clients take their plans for the year and break them down into key milestones. What will they accomplish in the next month, quarter, and year?

For example, how much revenue, if any, do they plan to produce? This is not simply a number. Start from the bottom up. What will they sell and to whom? If they are a subscription business, what will each of their subscriptions include? Is their subscription bundled or do they have distinct modules? If they are a services-based business, how many hours of service will they provide to each customer? You get the idea. Why is this so important? Because with specific targets, they are establishing specific goals and that will drive the behavior to accomplish those goals. They will know exactly what is needed. These details matter.

Monitor

Many organizations stop after visualizing because it is too difficult or time-consuming to keep up with the actuals. But monitoring progress in real-time is crucial – not at the end of the month, not at the end of the quarter, but truly in real-time. Each week really matters when it comes to meeting goals. Your clients should be able to see how their revenue, expenses, and cash are tracking against their goals in as close to real-time as possible so that adjustments can be made. What if they knew early in the month that they were falling behind in sales or had an unexpected churn? If they miss their plan early in the year, the compounding effect makes catching up for the lost revenue very difficult. If they know early on that they are falling behind, they might incentivize a prospect or get a customer to sign up for a new module a month early so they do not fall further behind.

Staying on top of actuals versus the plan is also where things get a little harder. While spreadsheet models can be used to do planning, they are much less efficient when it comes to updating them for actual results on a regular basis. The more the business grows, the harder this becomes. One simple suggestion around this for those using spreadsheets is to not just have one column for actuals in your spreadsheet but have four or five columns – one for each week of the month. By updating each week, companies can become less reactive and more proactive.

Adjust

Organizations should always be in a position to make adjustments – both financial and operational – based on the actuals. As time goes on, they will need to make adjustments to their forecast based on revised sales projections, product release dates, days sales outstanding data, etc. The adjustments could be made to hire dates, capital investments, when they talk to banks about lines of credit, and frankly all their discretionary spending. Does it increase or decrease? The sooner they can respond, or the more proactive they can be, the more impact it will have.

A good, but painful example is the impact that COVID-19 is having on many businesses. If your clients see some sales pushing, they need to get out ahead of cutting expenses. The sooner they make those decisions, the more cash they conserve, and the longer they extend their runway.

Proactive planning is a key first step in a finance and accounting playbook we have developed for our own business at AcctTwo. Having implemented a proactive planning process has helped AcctTwo immeasurably. We started the year with a plan, monitored our progress in real-time, and are in a much better position to adjust, when and if needed.

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Marcus Wagner is the Founder and CEO of AcctTwo. He has more than 25 years of experience in finance and accounting, auditing, internal controls and risk management, system implementation, process design and re-engineering, finance transformation, outsourcing and shared services. Prior to founding AcctTwo, he was a Co-Founder, Partner and Advisory Practice Leader at Calvetti, Ferguson & Wagner, P.C., a Houston-based accounting firm. He started his career at Price Waterhouse LLP (now PwC) where he spent 11 years in audit and consulting and left as a Senior Manager. He lives in Houston with his wife and three children.

AcctTwo removes the clutter of manual tasks from the finance and accounting function and provides clarity to finance and business leaders through a combination of cloud-based accounting software, managed accounting services, and software development. AcctTwo has been Sage Intacct’s global Partner of the Year for the past seven years in a row. The company is headquartered in Houston with additional offices in Dallas. www.accttwo.com