Following on from the earlier insights shared in the first part; this blog will explore further angles of how the strategic plan can be of value to your Company. The importance for complete stakeholder buy-in during the life cycle of the Strategic Plan is vital. Whilst a discounted cash flow (DCF) analysis is a further value-adding tool, which can further help to demystify your Company’s future uncertainty.
Stakeholder buy-in and the Strategic Plan “shopping list”
The Strategic Plan will only be a success in unlocking uncertainty if there is full buy-in from all stakeholders in a company. The diverse and complex nature of corporations often prevents financial analysts, let along executives, from being fully across all aspects of the Company. It is vital for the strategic planner to engage and consult various company stakeholders, who will be an immense resource in helping to demystify the Company’s future uncertainty.
- Labour costs. For most companies a significant proportion of the cost of business. Human resources will be able to provide all costs of labour information, such as base salary, pension costs, employment insurance and other compulsory employment costs for an employer.
- Sales. A comprehensive forecast by product or service, by region or business unit, could require the co-ordination of numerous stakeholders; hence buy-in from the company’s sales executive might be advisable.
- Direct costs. A company’s direct costs matrix will be the domain of operational staff; it must be precise because it will provide an insight into the profit margins by various products and services, which will provide the basis of certain strategic decision-making.
- Treasury. Their input will be dependent on the company’s sophistication; in terms of forecasted interest rates, foreign exchange rates, and commodity prices. Further, treasury could provide vital information on expected debt or equity raisings, which would invariably impact credit metrics or shareholder earnings per share.
- Accounting/Finance. This department will be an important source of information for accounting depreciation rates for various assets, and indirect expenses across the Company.
- Tax. This area will provide vital information on government subsidies or corporate tax credits, corporate tax and tax depreciation rates.
- Corporate development. Potentially an important and obscure information source; such as the knowledge of a game changer like an acquisition or divesture, which could dramatically alter the financial landscape of the Company.
Discounted Cash Flow (DCF)
A best-practice financial model, strategic plan is not complete with the realisation of comprehensive forecast financial statements, and perhaps discounted cash flow statements to value the Company. There are still other ways to unlock further value for a company, in terms of shedding additional light into their future financial performance and thereby reducing the uncertainty to executive management.
A DCF is a great high-level, executive summary tool of your Company’s strategic plan. It outlines if the company will be generating added value in the future, via fresh cash flow, and if not – what are the drivers for the loss of value. In the above animation, the company is generating positive net income, which more than adequately offsets the capital expenditure of fixed assets.
The DCF schedule presents the Company’s financials in another light, which is more simplified and straight forward than the comprehensive financial statements – income statement, cash flow statement and balance sheet. Certain users of the strategic plan may prefer to study the DCF first, using it as an entrée before they dive into the detail of the financial statements.
It can assist executives to chart the end-game for their company, in terms of striving for a certain enterprise value or value per share, through which to exit the company via a trade sale, sale of shares or IPO. In the case of a public company, the DCF will give executives and the strategic planners a proxy of their perceived value of the Company, relative to the share price on a public stock exchange – which in this current economic environment could vary.
The final part to come …
Following on from the first part of this article, this feature focused on the inherent value presented in the Strategic Plan, through the inclusion of a discounted cash Flow (DCF) and full stakeholder buy-in during the composition of the Plan. The DCF presents the Plan in an alternative, high-level way to executives, which helps to further debunk future uncertainty. The stakeholder buy-in guarantees all areas of a company are consulted during the planning process, which further sharpens the accuracy of forecasted numbers.
In the final part to this feature, the power executive dashboards and advanced approaches to demystify financial uncertainty via sensitivity and scenario analyses will be examined.