No one expects you to be able to see into the future, but you can use data and commercial experience to plan, actively manage and project your trajectory.
The better the business becomes at each of these disciplines the easier it becomes to explore the best commercial outcomes.
Providing your Essential base is optimised correctly, the process of creating a meaningful financial plan, being able to provide an active narrative on performance, and an informed view of what’s coming on the horizon, becomes possible.
Budgeting, Advanced Management Accounts, and Projections are therefore the three key parts of the Enhanced phase of the Finance Maturity Curve, the tool we use to assess the strength of your operating model.
When you’re in the business it’s not always easy to form an independent perspective of where to target your attention. To help form an objective view of your relative strengths and weaknesses, and where you might need some support, we’ve created this easy to use Finance Maturity Scorecard –
“Too many businesses make life hard for themselves by not having the right financial maturity in place. By following this methodology, you will be running a far more robust operating model.”
Stuart Brown, Portfolio Non-Executive Director
Enhanced step by step
A detailed and achievable plan for the next 12 months
Many agencies can claim to have a budget in place, but it is important to have confidence that it has been produced following a robust and meaningful process. A 12 month budget needs to be modelled around the key areas and reporting requirements of the agency, and not just a narrow view of sales or core costs.
Hallmarks of a good budget are if it also includes an accompanying capacity plan, marketing plan, balance sheet and cash flow model. It should consider departmental reporting and useful recognition of different types of revenue. An effective budget therefore is a key part of your business plan for the year ahead.
It’s also a reminder that your own objectives are by far the most important benchmark you can compare to.
Management Accounts Advanced
Adding the voice of an independent finance professional
Having your historical data in an optimised view helps to bring important trends to the attention of your decision makers. This is transformed however when it becomes a tool to assess performance against your budget, and particularly with an independent finance voice at the table.
While the figures describe a point in time, a finance professional can describe what is driving those numbers, what patterns are occurring in the data, and why it is important. They provide opinion, insight and analysis – the narrative behind the numbers.
This finance through the lens of the business, helps to shine a light on true performance, and moves management information away from a statement of fact to a rich resource for insight and interrogation.
Using data and judgement to map out likely scenarios
There are no guarantees when looking into the future, which is more than true when thinking about business.
Projections however play an important role in helping to map out the likelihood of meeting the budget, and to explore scenarios that provide opportunities or help to manage risk.
For truly effective projections overheads and revenue need to be updated continuously, and integrated with a live understanding of target, converted and quoted revenue. Not only does this depend on the consistent quality of the historical financial data, but also the integrity of the sales pipeline.
Mapping out expected, worst and best case scenarios based on weighted probability (for example) can illustrate the impact of the current pipeline on profitability and even how that translates into cashflow.
Transforming numbers into narratives
A focus on the Enhanced aspects of your finance function allows you to align your business much closer to your overall objectives, and to create a powerful narrative around progress.
Having this sense of being able to understand what is happening now, and what might happen in the future- even if you are unable to predict it – is an important signal to financial maturity. As is welcoming in the voice of an independent finance partner.
MAP specialises in helping Digital Agencies in this journey by bringing together technical, industry, accounting, and commercial expertise into one place.
Complete the Agency Maturity Scorecard and see how we can help deliver for you.