Financial planning and project management are two sides of the same coin.
Long-term projects are made of interrelated activities that all have highly time-dependent financial consequences. Gantt charts and project timelines dominate the project planning industry – and for good reason. They are a quick, visual way of understanding the relationships between different parts of a project across time and also a system for changing these timings to illustrate different scenarios.
But the same focus on time is rarely seen in financial planning tools. This, I think, is a mistake. Timing is crucially important to financial planning and the benefits of a project-management style timeline are obvious.
And I’m not just talking about short-term cash flow forecasting. Nothing in a business happens in a vacuum – everything impacts everything else, on a financial, operational or personal level. So, why not run the whole business on a timeline? Well… why not? It’s a great idea!
Today I’m going to show you why planning when things happen is critical to financial planning. I’ll also show you how using the Timeline in Brixx makes this a doddle 😉
Imagine you start a new major project (The Project), which means your team is working flat out. What drops by the wayside?
- Maybe it’s the research that you’ve all been working on in your spare time?
- Maybe you just don’t have the bandwidth to improve your internal systems?
- Maybe you can’t afford the same personal touch to sales and marketing as you did?
- Or perhaps you need to hire in contractors to take some of the pressure off your team?
You can’t plan this project just by projecting some figures into the future. It’s more complex, more interrelated with other business activities.
If there’s one thing I could tell anybody getting stuck into planning their business it’s this:
Planning is about the real world and the timing of events. The good news is – we live in the real world! No specialist financial knowledge required there.
Let’s run with the example above and imagine planning for it. The consequences of my team working flat out on The Project could be many…
Due to a lack of focus on marketing activities, sales drop. So we contract in a marketing company to help while the core team is busy. The contractors are smart but costly, and even with their experience, it takes them a few months to learn the ropes of generating cost-effective sales in our competitive marketplace…
Meanwhile, the core team’s work on The Project is hitting some expected, and some unexpected roadblocks – which require more time, licenced software and equipment to overcome.
The Project is now running 2 months late, sales are picking up again after a 3 month hiatus, at the cost of engaging an external team of marketers (on a 6 month rolling contract…), we bought a new server and several licensed software products and the business’ long-term research project is on the backburner, preventing it from generating revenue in 18 months time as we had hoped.
We’ve had no time to find lower cost alternatives to our current systems, and in fact, have added to the complexity of what we do with the new systems required to make The Project possible. In the midst of this, we need to ensure that the business still has the cash to pay salaries each month, and can survive if The Project suffers further delays… and think about what the financial outcome of The Project will be once it is complete!
Did this version of events go as well as we wanted? Well, no.
But could we plan for this? Yes, absolutely.
So how do you go about planning the financials for a business activity like The Project?
Imagining the future consequences of The Project is one challenge – but one that’s close to your heart. It is, after all, your project and you know your business. And you have many tools available to you, like market research, to help you make realistic assumptions for your forecasts.
A big challenge though is timing. Everything involved in The Project has an effect that happens at a specific time, or over a period of time. And we can’t answer key questions like “Do the salaries get paid this month?” without understanding the timing of everything The Project effects. What’s more, one of the major issues The Project could face is slippage – things taking longer than expected, or sales not being generated quickly enough by the contractors. We need to be able to make adjustments to all of the financial activities related to The Project and see the consequences of these changes in our financial position – in particular, our cash flow forecast.
This sounds like a big job. But, like all big jobs, using the right tool for the job makes a huge difference.
The right tool for this job is the Brixx Timeline, where you can change exactly when any business activity or groups of activities happen in your plan. It’s a drag and drop interface, combining the simple immediacy of a gantt chart with automatically recalculating financial reports and charts.
Every component in a Brixx plan sits in a particular place in the plan’s Timeline, with a clearly displayed start-point and end-point. This means that any financial activity in a Brixx plan, be it a source of income, the purchase of an asset, the sale of shares, can be changed to take place at a different time. You can also adjust the Timeline for groups of components – the applications of which are almost endless.
Making a change on the Timeline automatically updates all of the plan’s financial dashboard figures, as well as financial reports and KPIs, providing fast feedback on any change you make.
Here’s a simple example – a group including a new product line:
Currently, this group and everything in it starts 1 month after the start of the plan. By dragging the group’s grey timeline bar, all components in the group can be moved at once, ensuring that all products in the product line and their associated cost of sale component are moved together. We might do this to represent the product line being delayed or brought forward.
The group of components described above is pretty simple, but sets of grouped financial activities can be more complex.
For example, what about a buy-to-let property purchase, with its associated mortgage, repair and maintenance costs for the property and the rental income gained from renting the property out after some initial refurbishment costs. In Brixx this whole set of related financial activities is easy to assemble into a group of components. They can then be moved forward or backwards in time depending on the situation being modelled. Perhaps the property purchase is delayed, or renovation takes longer than expected.
Finally – the big one – let’s look at how The Project would look on the Brixx Timeline…
And how the figures from these items are displayed on the cash flow dashboard…
I hope you’ve enjoyed thinking about time with me – and learning about the Timeline in Brixx! There are a wealth of uses for it, so get on and experiment 🙂
And remember that the secret to good planning is…
I can’t believe I just did that.