While I was working in telecom, even though I understood the importance of financial planning, I had a strong contempt towards the process. Besides the Excel horrors, I often had the are-you-kidding-me-this-is-a-made-up-number feeling.
Planning is often just folklore, designed to minimize expectations and commitment. Done right, financial planning can drive business value and become the pulse of the whole organization. Riding on this "challenge accepted!" wave we founded Farseer - a game-changing FP&A software.
In this process, we have learned a lot, and I want to share with you the experience of eating our dog food - or doing financial planning for 2021.
Fail to plan, plan to fail.
By doing proper planning for this year, we discovered how finances drive strategy and vice-versa. Our strategic themes for 2021 are constant hiring, full-fledged SaaS, and superior UX in both the product and service. We started by defining how much we want to grow in revenue in 2021.
When we crunched the numbers, it turned out that we will need to double the team. How and where to find 8 skillful and motivated people that are a culture-fit? We need to start hiring yesterday!
To do so, we need employee branding, headhunting, and employee stock option. And for every one of those aspects, we need a budget - in money or equity.
When planning, start from the growth you want to achieve, define the revenue and the clients you will sell to, and derive strategy, strategic initiatives/projects, and related costs.
We started by defining how much we want to grow in revenue in 2021.
The strategy has to translate into actionable goals and tactics.
KPI’s for Farseer founders and employees naturally came out of our financial plan. Clear goals on the company levels with clear KPIs for employees, combined with the right culture will bring autonomy and growth to employees and the company.
Previous to this year's planning, we had a team-level revenue goal and runway goal (how many months of cash runway we want to have at any given point in time).
Even though we are all clear on where we are and where we are going as a company, defining KPIs instantly crystallized the owners of certain metrics.
That empowered us to handle all underlying processes.
Clear goals on the company levels with clear KPIs for employees
Focus on the drivers, not the details.
Drivers are the key variables that influence your business. Our key revenue driver for 2021 is the number of corporate accounts.
We dug deeper to ask ourselves what drives the driver, so we analyzed the number of outbound contacts towards companies in 2020, the number of meetings, the number of proposals, and the revenue that came out of that.
Considering the number of corporate accounts we need to acquire in 2021, we defined the number of meetings needed - in total and per consultant per week.
This number of meetings per consultant per week became a KPI. We also took into consideration that we can not reach that goal now, so to reach it, we defined a few key projects and activities, that also had to be planned in terms of scope, deliverables, cost, and owners.
We dug deeper to ask ourselves what drives the driver...
Planning must be holistic since you constantly have to switch between the numbers and strategy, between drivers and activities, zooming in and out as necessary to create a solid plan for the year ahead.
We used Farseer's flexibility and set 4 key drivers on our dashboard. During our bi-weekly runway meetings, we drag&drop our bank statement into Farseer (thank's to our award-winning import module), update the plan numbers and play a bit with the drivers, so we can prepare for a few plausible scenarios.
Creating the initial plan took more time than expected, and there were also these iceberg moments where we would see only the top, and digging in took some time and additional information.
This is why next year we will dedicate a whole week to planning and come better prepared. We have also learned that planning is never done and that numbers have this amazing way of creating laser-focus for the entire team.
Here's are a few tricks you might find helpful.
1. Driver-connected model - a lot less work with greater planning flexibility and accuracy. Server costs are connected with the planned number of seats, marketing costs drive the number of seats, etc. This also enables us to slide these drivers and create a few crucial what-if scenarios.
2. We did the worst-case scenario plan and then ignored it since the fulfillment of that version of the plan would mean the end of the company. Still, it felt good to know that even the worst is not so bad.
3. We created a weighted revenue plan since the biggest part of our revenue will come from a few mid-size to big clients. Each potential client is named in Farseer and has the probability for closing percentage attributed as a revenue multiplier. We are aiming for our weighted corporate pipeline to be 150% of our non-weighted sales quota at all times.
4. We created a hiring plan by roles and seniority with a stock option plan, education plan, and a few lines of expenses that make the salary. All related costs in the model automatically grow as the number of employees grows (computers, applications, team building...).
5. We connected investment, revenue, and costs into a cash flow model and created a cash runway graph that influences all major decisions.
And remember, the best way to predict your future is to create it.