Just look at the numbers: the majority of small and medium-sized businesses don’t engage in formal budgeting (annual planning) or strategic planning (multi-year business plans). The data below, pulled straight from ChatGPT, speaks for itself:
Business Size | Formal Budgeting | Strategic Planning |
Solopreneurs (<5 ppl) | ~30% | <10% |
Small (5–50 employees) | 40–60% | 15–25% |
Medium (50–500 employees) | 70–85% | 40–60% |
If a business isn’t engaged in financial planning and analysis (FP&A), how serious is it really about long-term growth, improvement, and optimization?
3 Reasons to Engage in Financial Planning & Analysis
1. Set a North Star.
Strategic planning starts with defining a singular goal that captures the spirit of your long-term vision. This might be growing revenue from $1M to $25M, or increasing clients served from 100 to 1,000. The goal is to have one clear target that guides both strategic and day-to-day decisions.
2. Focus.
With limited resources, planning helps identify where to invest and—just as importantly—what to ignore. You’ll define key strategies, build tactical plans to support them, and establish metrics to monitor progress.
3. Arbiter of Activity.
Once the plan is in place, it becomes the ultimate filter for action. If an activity doesn’t support the plan, it should be questioned, deprioritized, or eliminated.
3 Guiding Principles for FP&A
1. Grow profit faster than revenue.
As revenue increases, profit should grow even faster as a percentage of revenue—allowing for reinvestment, increased distributions, or both.
2. Refresh annually.
Measure performance monthly against your annual budget, but update your 3–5 year strategic plan every year to reflect market shifts, new opportunities, and internal progress.
3. Direction over precision.
The goal is not a perfect prediction. It’s about setting a direction. The world changes constantly—your plan should be adaptable, not rigid.
Final Word
Failing to plan is planning to fail. With most businesses lacking structured FP&A capabilities, those that do engage in strategic financial planning gain a clear advantage: better results, more efficient use of resources, and a sharper competitive edge.