The DAF obviously plays a leading role in the development of the financial business plan because its purpose is financial: raising funds from lenders or investors, valuation in the context of an equity transaction.
Most often, he writes alone or contributes to the “literary” part of the document: presentation of the company, its strategy, the market and the competition, description of the business model and the operational action plans. The realization of the financial business plan of the company is the work of a team that the financial director must know how to mobilize.
Role of Financial Conductor in Financial Business Plan
The development of the financial business plan is a team effort that requires the participation of the various operational managers and often experts (technical, tax, legal …). The chief financial officer plays the role of a leader in coordinating their forecasts, which is quite similar to that of the controller in steering the budget process.
Define and Animate a Collective Framework
The chief financial officer defines a collective framework in which the forecasts will have to be elaborated, which he explains during a meeting of launching of the working group:
- Statement of the strategic and operational objectives of the company over the duration of the plan;
- Definition of the rules of the game specific to the company: activities that can be outsourced or not, definition of a rate, minimum use of internal resources, maximum debt capacity …;
- Determination of different scenarios on which “floor”;
- Call for the initiative of the operational managers. The CFO suggests that they propose new action plans (productivity investment, creation of a new logistics platform, etc.), changes to the business model that will enrich the original forecast;
- Validation of everyone’s predictions by confronting them;
- Provision of a collaborative computer tool with reserved access for each operational manager to enter its forecasts. A spreadsheet provides this functionality. This tool provides the keys to modeling prediction for simulation purposes.
It clearly shows the absolute necessity of developing a forecast that is as reliable as possible. Undervaluation of investments and overly optimistic earnings forecasts will underestimate the need for financing and will cause future cash flow difficulties. Unrealistic assumptions will fail to win the confidence of funders and the CFO will undermine his personal credibility by spreading them. By collaborating in the business plan, operational managers do not work for the CFO but for the future of their business. In turn, the CFO is as transparent as possible in communicating the final document. At the last end.
It asks everyone to justify in writing the assumptions used (documentation): references from past projects, sectoral standards, evaluation of productivity gains, realistic market shares with regard to the company’s positioning. These comments will be integrated into the version of the business plan communicated to its recipients.
Above all, the CFO imposes a collegial framework on the various contributing operational managers. In the first place, they will have to prepare their forecasts in connection with their teams and management control. He will lead meetings in which the operational managers will compare their forecasts with each other in order to ensure the credibility of each party and the coherence of the whole.
For large-scale projects, it uses experts from outside the company to validate technical hypotheses and carry out a risk review. In conclusion, the CFO defines and animates a real forecasting process that feeds the business plan. It will integrate this mode of operation in the business plan itself to convince its recipients of its seriousness.