How can you make the annual financial plan even better?

1. Get management buy in. Incent managers with cash bonuses pegged to Plan revenues and profits.
   
2. Make your forecast of next month's sales right. If you can't project sales for January and February, how can you possibly project sales for November and December?
   
3. Have a do-able hiring plan. One Boston financial institution was looking to hire 2,000 employees while another was looking for 300 technical folk. Can your recruiting program compete?
   
4. Set reasonable sales productivity goals. Quotas will be higher than last year, but how much higher?
   
5. Is your product being sold to early adopters (long sales cycle)? Can you get better performance from the same sales staff? Or, do you need more 42 longs?
   
6. Eliminate each development project with a low revenue:cost multiple. Calculate revenues through the next 3 years for each development project. If they are not at least 30X the project's development cost, drop the project.
   
7. Compare spending and productivity to a similar company. Explain why you spend 40% on R&D, while they spend 20%. And, why you plan sales per employee of $200K, compared to their $280K?
   
8. Plan for profits. It's easy to lose money, even easier to plan to. But, you will not be profitable unless you plan to be profitable.
   
9. Project changes in dso ("days sales outstanding", a measure of how many days it takes to collect accounts receivable). Will DSO increase? Because your product is weak, "sales" are not really sales, or your accountants are ineffective?
   
10. Think about how you will manage creditors. Payables will probably increase as your company grows. But, be conservative in your Plan: assume you pay for purchases in the month purchased (i.e., hold accounts payable constant through the year).
    
11. Rationalize the travel budget. Ask each manager to justify trips planned. What makes travel expensive isn't the air fares or the hotel bills, it's the trips themselves.
    
12. Understand bank and lease financing. If you plan to borrow this year, be sure to have your CFO run a covenant analysis (at the end of each quarter). Re the lease financing, if you are an early stage company, are you willing to pay 20%+ interest and give up warrants?.
    
13. Rank your marketing programs. Have the Marketing VP list the programs (direct mail, advertising, PR, trade shows, et al) by dollar spent, by lead generated, and by perceived benefit. Then have him explain the rationale for spending less on the most productive programs. Also, calculate the direct cost to generate each lead ($500+ at some software companies).
    
14. Include a sensitivity analysis. What will your minimum cash balance be in December if sales slip a quarter while staffing is on plan, or if receivables are not collected as planned?
    
15. Build in cushion. Target a "cushion " (or, extra reserve) at December 31 equal to Q4's operating income.