Written by Philipp Stirnemann on October 9, 2018 in Business planning
Strategic planning

Maybe you have already faced the following questions:

  • Can my company afford a larger investment next year?
  • Will this investment generate an added value?
  • How high is the synergy potential in new investments, purchases or reorientation?
  • What is the liquidity situation for the following years?

In turbulent times, factors mount up, and the company must react accordingly. For instance, the effect on liquidity or equity capital depends on factors like market environment, exchange rate, regulatory environment, funding, capital expenditure on extension, payment of dividends, etc. These items cannot be adequately created with the help of planning on a stand-alone-basis – all factors must be taken into consideration in the integrated overview.

Integrated planning

The purpose of good planning should not just be to move to the next step of your project or to get financial support, it should be more about creating a helpful planning tool, and a prospective business concept. With such an integrative approach, it is possible not only to optimize your capital, liquidity and save costs – it also can help you to manage your risks properly. Many such questions should not be considered separately, because a lot of different aspects are closely connected and interdependent.

What is integrated planning / an integrated financial plan?

The pro-forma statements, i.e. income statement, cash flow statement and balance sheet are linked with each other, while the inputs, calculations and outputs are visibly separated. A change in inputs influences not only the correspondent year or the correspondent cost centre. All the subsequent years, cash flows, profitability and capital also change due to the interaction of different components.  It is almost impossible to assess the implications of current decisions correctly, as significant interactions develop between separate value drivers over time.

More on this topic: Pro-Forma Statements

Planning tool for strategic decisions

When operational realignment is looming on the horizon, or in case of a big investment, the effects on company value must be analyzed in advance. Often companies become active when a transaction must be dealt with (it happens in acquisition, or rather with the intent of acquisition). It usually takes time, as the human and time resources are short, and as a result colossal amounts of money are spent on consultants and solicitors. With the right strategic decisions, it is possible to set the correct course in advance, which in the long-term perspective, reduces costs and strengthens one’s position in negotiations. Strategic decisions influence a company’s course of action for several years ahead, and can be corrected only with major allocation of resources. That is important enough to take the necessary time in making the decision.