Here are XMI, we talk a lot about the importance of clean books and accurate financials. But it’s not just because we’re accountants and we like things to be right. It’s because we also know that good accounting of past performance is the only way a company can make a realistic plan for the future.
Having accurate financials at your fingertips allows you to more quickly seize business opportunities. Knowing your expenses helps you game-plan for responding to a slowdown. If accounting looks backwards at the work that has already been done, financial planning and analysis (FP&A) is focused on the future—on the what-if and the what-could-be.
In a recent Nashville Business Journal article, “Into the Unknown: Nashville CFO Shares Strategies for End-of-Year Financial Planning,” XMI’s Josh Farber explains the importance of FP&A and why it’s particularly vital in unpredictable times like the present. But while FP&A has never been more important, it’s also never been harder. After all, how do you plan for the future when the past (ahem, 2020) is not a reliable indicator?
The key, Farber says, is scenario planning. He recommends making a plan for at least three scenarios—worst case, expected case and best case.
“Crisis management—which a lot of us got a crash course in earlier this year—is easier if you can define the triggers in advance and make realistic plans about what needs to happen in response,” Farber says. “Cuts that need to be made and in what order for the worst-case outlook, but also opportunities your company could pursue if things turn out better than expected.”
Read the article to get more of Farber’s tips and suggestions for year-end planning that can still be meaningful, despite so many uncertainties.