How to Ensure Your Plan’s Financial Viability - dummies

How to Ensure Your Plan’s Financial Viability

By Erica Olsen

After you’ve completed your goals and actions, assess the financial viability of your strategic plan. While your action items and goals are fresh in your mind, estimate the costs associated with the implementation of each item.

All the best-laid strategic plans are subject to time and money. Look at the estimated expenses and the potential revenue. This review helps you make decisions about when to implement certain action items and whether your cash outlay generates the required revenue to meet your financial goals. As with every business, budgets are never big enough to do everything you want to do.

A business can be considered a financial success when it does the following:

  • Stays in the black and turns a profit

  • Has a healthy balance sheet

  • Generates good cash flow

  • Produces a good return on investment (ROI) for its shareholders

Attaining financial success starts with a financial assessment that’s based on historical record and future projections. By looking at the past to help plan and predict the future, you can gain much better control over your company’s financial performance.

A good financial plan gives you a detailed picture of the financial health of your business and the viability of your strategic plan. It also helps you know whether you’re getting off track during implementation so you can take action before anything serious occurs — like running out of cash.

To conduct a financial assessment of your strategic plan, take the following steps:

  1. Estimate revenue and expenses.

  2. Conduct a contribution analysis to determine whether your strategies positively contribute to the bottom line.

  3. Combine all your numbers in a one-year and three-year financial projection.

The cold reality is that you’re in business to make money. If you’re not making a return on your investment (ROI) at some point, you don’t have a business; you have an expensive hobby. Ouch! That hurts, but it’s the truth.

Your financial assessment concludes with an analysis on your ROI. After all, there’s no sense in implementing a plan if it won’t yield the desired return. As an owner, you’re either investing in or drawing out of your business. If you’re investing for growth, you ought to have a clearly defined payback period and strategic plan to get you through it as fast as possible.

Your payback period needs to match up with your owner’s vision. Business owners often plan for growth without considering how long it takes to get a payback or developing the action plans to get there. Looking at how quickly you’ll get paid back for your investment forces you to decide whether you’re comfortable with the time period. If the time period is too long and the investment is too big, don’t invest.

Revise your strategic plan by removing a few goals and action items until you develop a plan you’re comfortable with. Remember, the plan works for you — you don’t work for the plan.