Key Factors Of Financial Planning In Business – Financial KPI Examples, Common Misconceptions & Importance Of Financial Plan

No one has ever achieved financial fitness with a January resolution that’s abandoned by February” – Suze Orman

For any organization, business or startup financial planning brings in a lot of benefits. It tells you what your financial goals are, your budget for the project and how you have to manage your finances well.

In this article, we will be covering the financial planning KPIs, the common misconceptions about financial planning and the importance of financial planning in business.

Proper financial planning helps in managing your business’s cash flow and helps in saving as well. A company’s profit rate might not be the same throughout the year. It increases and decreases depending on its demand in the market. So there might be instances of loss as well. That’s when a financial plan comes into the picture. It prepares you for the worst and with a financial plan in hand, you would be able to tackle the situations and will not have any shortage of money at that time. Key factors of financial planning include planning, budgeting, managing taxes, revenue, and investment come under a financial plan.

Financial Planning KPIs in a Business

Key performance indicators or KPIs in simple words are the approximate value that shows how your company is taking steps to achieve its goals and objectives.

The below-mentioned matrix is some finance KPIs in a business.

1. Revenue / Sales

Revenue is basically the total amount that your business has generated in a particular month by selling the product or service to the consumers or other businesses that might need the product or service that you offer.

2. Expenses/ Investment

Investment is the actual money you have put in to get the desired revenue. It includes the expenses of equipment, rent of the place, labour’s pay and expenses of all other supplies that are needed for the business.

3. Cash Flow

Cash flow in simple words is the amount of money that is coming to you and going from you. If the money that is coming to you is greater than the money that is going out from you then your company has a positive cash flow and is yielding good results.

Examples of Key Performance Indicators for Finance

  • Accounts receivable turnover
  • Average customer receivable
  • The average monetary value of overdue invoices
  • Cumulative annual; growth rate (CAGR)
  • Earnings before interest and Taxes EBIT
  • Earnings before interest, taxes, depreciation
  • Fixed costs
  • Indirect costs
  • Inventory turnover
  • Internal rate of return (IRR)
  • Return on capital employed (ROCE)
  • Sales growth
  • Share price
  • Total sales
  • Variable costs

Examples of Key Performance Indicators for Sales and Marketing

  • Average deal size
  • The average number of activities per deal
  • Average price discount per product
  • The average revenue per product
  • Sales conversion
  • Customer acquisitions cost (CAC)
  • Qualified leads
  • Ad click-through rate (CTR)
  • Cost per lead (CPL)
  • Cost per mille (CPM)
  • Lead generated
  • Return on marketing investment (ROMI)
  • Website visits
  • Customer churn ration
  • Customer satisfaction (NPS)

Now let’s look at the common misconceptions about financial planning and get to know why they are wrong.

Common Misconceptions About Financial Planning in Business

When it comes to financial planning certain misconceptions are stopping people from making the most use of it. The two most common misconceptions are,

1. Only large organizations are bound to do financial planning. It is not needed for small businesses and organizations.

Financial planning helps you in determining your company goals, be it long or short term. And help you to come up with a plan to meet the goals. So the size of the company does not determine whether you need a financial plan or not. Any company, be it small or large, who is willing to gain profit and succeed, and wants to manage its expenses and cares about the company’s security and its future must have a financial plan. Because a financial plan is not a Want it’s a Need.

2. They are just made-up plans and are a one-time exercise.

A financial plan is not a one-time exercise. Your company will have a standard goal and will work towards it throughout. But sometimes the Government, the tax, the time and the situation around you would not be very kind to you to help you in achieving your goals. So at that time you should make changes to your plan and review it according to the situation.

And sometimes those strategies you have come up with would not have given you the desired result. So you would be bound to review your financial plan and make changes accordingly.

Only then you would be able to meet your company goals.

Importance of a Financial Plan in Business

A financial plan offers numerous benefits to a company. The importance of a financial plan includes:

  1. It makes you understand the financial status of your business
  2. A financial plan helps you in assigning tasks to your labourers and tell them your goals more clearly
  3. It helps you in making your plans well and to get a clear view of the fund requirement
  4. For better resource management
  5. To attain a business valuation
  6. For better planning and categorizing your expenditure
  7. It helps you handle sudden changes and in worst cases huge losses
  8. Helps you to utilize your finances efficiently
  9. It helps in measuring your progress every month and preparing and working towards the next goal

If you are looking for someone to chalk out a perfect financial plan for your company including all the key factors and financial planning KPIs. Then, connect with Udyami Helpline.