Use Your Business Plan As a Tool to Track Financial Performance

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business planning to track financials small business

We spend a lot of time devoted to talking about business planning here at Palo Alto Software. We’re the makers of LivePlan, a business planning software, after all. Our founder, Tim Berry, literally wrote the book on Lean Planning.

But planning just for the sake of planning? That’s not something we’re particularly interested in. We think of business planning as an ongoing, iterative process; a way of steering your business in the right direction.

Your plan should serve as a roadmap—a way to better understand where your business is going. When done correctly (think lean and agile—allowing for course correction), it should be a tool for determining if you are on track to meet your goals and help you articulate exactly what you need to do to get from A to B.

To do this, you need to really understand your business. 

financial dashboard

Tim Berry, our founder and a long-time business planning expert, asked “Shark Tank” judge Barbara Corcoran for her thoughts on how companies can best demonstrate a thorough understanding of the inner workings of their business.

According to Corcoran, it’s all about becoming “intimately familiar” with your business, especially when it comes to your financials. This means having a clear understanding of what all your statements mean—cash flow, balance sheet, and income statement (profit and loss), and be able to explain why you’ve projected that you will move in a certain direction.

I asked our COO, Noah Parsons, to weigh in too. He said that keeping a close eye on the numbers that are important to your business allows you to see not only where you’ve been, but where you are headed.

Noah Parsons

Noah Parsons, COO of Palo Alto Software

“The number one reason to track the key numbers that make your business successful is that you’ll get critical insights into where your business is going,” says Parsons. “If things are going well, your metrics will help you figure out where to invest more so you can grow even faster. If things aren’t going well, you’ll be able to understand why and make the appropriate changes to correct course.”

What does tracking your financial performance have to do with your business plan? There’s an important link. Because your financial performance is a critical indicator of your business’s health, doing a regular business plan review, coupled with monthly financial statement analysis, will help you make better major spending decisions. This sort of analysis looks both at how you’re doing right now compared to how your business did in the past, but also how you’re doing compared to your forecasts. 

It’s not just a look back, it’s a look forward—and you’ll be bolstered with data you can actually use to guide your strategic plans. It’s insurance against slowly (or rapidly) walking your business off a cliff without even realizing it. 

In a nutshell: Use your regular financial review to inform your strategic trajectory, whether you call that your strategic plan, your Lean Plan, or your business plan. 

So, don’t think of business planning as a document you create once and forget about. Parsons and Corcoran’s advice both stress the value of planning as a regular process that you do throughout the entire lifecycle of your business.

Think of business planning as something baked into your everyday work of running your business, rather than a one-off task you need to complete. When you track key metrics and make sure they measure up to your projections and projected milestones, you’re doing the work of business planning. Not only that, but you’ll be able to make more educated predictions or forecasts about the future.

“When you’re making decisions based on facts and data instead of hunches and guesses, you’re more likely to make the right decisions,” says Parsons. “Not only that, it’ll be easier to make decisions.”

Of course, it’s easy to keep an eye on your financials, your milestones, and other important areas of your business with a business dashboard, but it can definitely be done with Excel spreadsheets. The method isn’t as important as just making sure you’re doing it.

The bottom line: To make informed predictions about where your business is going, look at your financials regularly, comparing actuals to what you projected so that your guesses are rooted in a grounded understanding of the health of your business. “It’s important to have a complete understanding of your company’s financials and prospects,” says Corcoran.

For more insights from Corcoran on how to steer your business toward growth and profitability, read the article on Bplans here.

Briana Morgaine
Briana Morgaine
Briana is a content and digital marketing specialist, editor, and writer. She enjoys discussing business, marketing, and social media, and is a big fan of the Oxford comma. Bri is a resident of Portland, Oregon, and she can be found, infrequently, on Twitter.
Posted in Growth & Metrics, Management