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Real-Time Financial Planning, Explained

Build value with real-time financial planning

Hindsight is 20/20, and the future changes at the drop of a hat. It’s challenging enough to run the day-to-day operations of your business. So with all these changes, how are savvy business owners and financial leaders planning for the future of their business? From raw materials to inventory planning, human resource allocations and strategic investments, there’s  one kind of financial planning that keeps us grounded: real-time financial planning.

What is real-time financial planning?

Real-time financial planning relies on real-time data - or information that's available right after it's collected. It's a lot like tracking packages and seeing when and where they were scanned so you can beat the delivery driver to the door.

With the growing world of eCommerce, we're even more familiar with real-time transactions. With the click of a button, we can check our accounts to see how many sales have been processed, and quickly track our ARR or MRR. But real-time financial planning isn't just about knowing when the revenue came in, from whom, and what they purchased, or when your bills are due. Real-time financial planning means that your financial plan adjusts continuously based on your current business performance. This agile planning method allows you to better control and manage your cash flow, make appropriate investments and adjustments, and ensure that your business achieves its financial goals.

To accomplish real-time financial planning, business owners and finance leaders will need to adjust some processes and expectations in their business to rely on real-time information instead of expected results.

These changes may include:

  • Connecting your data systems to provide instant access to up-to-date performance data;
  • Shifting from a static to a rolling forecast; and
  • Leveraging financial modelling to understand potential scenarios.

Why is real-time financial planning valuable?

With real-time financial planning, you can quickly see the impacts of changes in your business with both internal and external influences factored in.

Internal Factors

Internal factors that impact forecasting overall impact real-time financial planning as well. Here are examples of internal factors that may impact your financial planning:

Sales promotions: An eCommerce business runs a special buy-one, get-one-half-off promotion, which does much better than expected. By incorporating the real-time results into their planning, the business can order additional inventory and plan for future promotions by increasing inventory or capacity before the sale starts.

Capacity availability: A manufacturing facility adds new automation robotics to the assembly line which increases their speed by 30%. This increase in capacity will allow them to manufacture products at a lower cost-per-item, and service more customers. By incorporating this information into their planning, the sales department can offer additional units to existing customers or expand their reach for even more new customers, increasing sales overall.

Staff resources: By leveraging real-time financial planning, you can plan appropriately for staffing needs. Retail locations can use real-time customer data to ensure they have enough people to get the job done .

External Factors

While internal factors are within the business’s control, external factors also need to be factored into their planning. Real-time planning allows businesses to adjust quickly to these external factors to support their growth (or prevent any negative impacts).

Commodity pricing: Almost all products have raw materials and commodities that are part of creating the product - from MDF to build to the fuel costs of delivery to the customer. These commodity prices can often change dramatically based on global conditions - which requires flexibility on the part of the business to absorb those cost changes or pass the cost increases along to the customer in the form of price changes.

Social media “buzz” & media coverage: Most businesses plan their capacity and financial forecasts based on their historical data. But what happens when something “goes viral” on social media or gets featured on a major news outlet? Sales can spike dramatically - which needs to be reflected in the short-term business planning.

Industry regulations: Some industries also have new and emerging regulations that can impact the way the business runs. For example, many industries have increasing regulations regarding environmental impacts that may have financial or logistic implications that need to be reflected in the business operations.

Getting Started with Real-Time Financial Planning

The first step in getting started with real-time financial planning is to incorporate and consolidate the sources of your real-time data. Causal can help with this by connecting directly with your systems including Xero, Quickbooks, Salesforce, Hubspot, and more.

Then, identify which components of your financial planning you’re ready to move to real-time planning. One great place to start is by incorporating a rolling forecast into your portfolio. Then, continue to move forward with leveraging real-time data and advanced modeling tools to move your financial planning out of the stone age and into the modern, agile era.

Causal has templates to help you get started with a variety of real-time financial planning tools. Curious? Give our platform a try for free.

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