Strategic Financial Planning Model Development: Strategies & Tips

As the first quarter of the new year winds down and memories of creating and sharing your budget model are still fresh in everyone’s minds, the second quarter of the year is an opportune time for corporate FP&A professionals to develop the company’s strategic financial planning model. 

As experts in helping businesses drive successful transformations, we’ve outlined everything you need to know about strategic financial planning models.

Things to know about Strategic Financial Planning Models:

1. What is a Strategic Financial Planning Model (SFPM)?
2. Signs your company needs a Strategic Financial Planning Model
3. Why is now the right time to develop a Strategic Financial Planning Model?
4. Tips and guidelines to develop your Strategic Financial Planning Model:

What is a Strategic Financial Planning Model (SFPM)?

Strategic financial planning models reduce your budget model into a focused set of line items, segments and metrics that are easy to modify and align with a longer-term strategic vision.

If one searches the internet for strategic model, there are several options and frameworks for general strategic planning. For the purposes of this article, a strategic financial planning model refers to a condensed version of your full-featured, multi-departmental budget model.

SFPM is supposed to be easier to operate and hence more convenient to run what-if scenarios.

Also, a SFPM references industry benchmarks and possibly guidance from public competitors to set growth and or profitability targets thus encouraging your company to turn outwards, which can be a healthy exercise.

Signs your company needs a Strategic Financial Planning Model:

• Running scenarios using your budget model takes too long and or is too tedious to the point where your company avoids scenario planning.

• Your company may be presenting itself to a strategic partner and needs to have a model to provide a high-level story and a way of answering the potential partner’s basic what-if questions during a conference all.  Or, your company pauses when it try to state what core metrics a strategic partner may evaluate the company on.

• Your company is investing in organic growth with product line and or geographical expansions.

• Your company is considering inorganic growth options, divestitures, or right-sizing costs relative to revenue.

Why is now the right time to develop a Strategic Financial Planning Model?

Developing a SFPM in the second quarter is generally ideal because the key lessons learned in developing the annual budget model are still fresh in everyone’s minds.

Secondly, developing a SFPM now means that your company is better prepared to undertake strategic planning sessions in the summer, which is the recommended season to refresh the company’s multi-year plan. 

Moreover, summer planning sessions facilitate developing more relevant annual budgets in the fall.

Tips and guidelines to develop your Strategic Financial Planning Model:

• Refer to prior models and investment theses used for capital raising to obtain insight on what prior investors were looking for when they invested in your company.

• Ask your FP&A team if they could reduce the entire budget model onto one Excel sheet, what would they include.  This can be an engaging exercise for your FP&A team and also one that sparks innovation and meaningful debate.

• Make your SFPM metric driven giving your executives the opportunity to see impacts by changing key metric variables

• Accordingly, refer to benchmark metrics for your industry.  Creating a SFPM also encourages your company to look externally versus refocusing on a budget model, which tends to be an internally focused exercise.

• Think of ways to model business units and product lines at a high level with allocated shared costs determined in a simple way so that organic or inorganic growth options can be quickly added to or subtracted from your scenarios.

Final Thoughts on Developing a Solid Strategic Financial Planning Model

When conducted correctly, a SFPM promotes agile planning and an external perspective, which is a fresh change from the usual internally focused annual budget process.

In order to put your best foot forward, it can be beneficial to turn to a trusted external partner to help you identify key business needs and goals in order to develop a solid strategic planning financial model and prepare your team to take on longer-range planning sessions as the opportunity arises throughout the year.

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