Reading time: 10 minutes
In an uncertain economic environment, planning is no simple task. But managing a business amid persistent post-Covid inflation without any financial planning can lead to far more serious complications.
Those who experienced Brazil’s hyperinflation during the 1980s and 1990s know how complex this problem can be for both consumers and businesses. While today’s inflation is nowhere near the levels of that period, it still raises significant concerns.
“Inflation erodes the value of money over time,” explains Elisângela Medeiros, financial education specialist and founder of Planeja suas Finanças. “Years ago, you could buy something for a certain amount that today is no longer enough for the same or even a similar item. That creates the feeling that money doesn’t go as far as it used to — and sometimes, that it’s simply not enough.”
In this context, consumption tends to decrease while prices continue to rise — a difficult equation for businesses to balance.
“This can compromise a company’s ability to meet its obligations — whether financial, tax-related, or even in fulfilling product or service delivery to the end customer,” notes Medeiros. “Paying close attention to details and being prepared to make sound decisions at each stage is crucial for good financial management.”
To navigate inflation, companies must reassess costs (directly tied to the company’s core activity), expenses (fixed organizational costs regardless of sales), and pricing strategies for their products or services.
“We understand that passing the full cost increase on to the end consumer isn’t always ideal. But at the same time, the company must maintain its operations without major disruptions.”
Medeiros also recommends creating an emergency fund and maintaining sufficient working capital. “Even if it’s a small amount, the ideal scenario is to set aside some cash every month for unexpected situations. If the company can invest this amount in a financial product that generates returns, that’s the best scenario.”
She emphasizes that any investments should not jeopardize the company’s ability to meet its obligations. The chosen financial products should offer solid returns and liquidity, allowing quick access to the funds when needed, and ideally avoid taxes or additional fees.
Strategic, Operational, and Financial Alignment
Financial planning should be viewed as a strategic tool to help companies achieve their goals and overcome challenges. However, it must be aligned with both strategic and operational aspects of the business.
“Never start with financial planning without first thinking about strategic and operational planning,” warns Reinaldo Guerreiro, professor and chairman of the Board of Trustees at Fipecafi. Otherwise, managers risk simply “repeating the past” by basing plans solely on previous results.
Guerreiro advises starting with a SWOT analysis (Strengths, Weaknesses, Opportunities, Threats). This diagnosis examines the external environment (opportunities and threats) and the internal environment (strengths and weaknesses).
For the external environment, managers should analyze relevant news, indicators, economists’ forecasts, and trade association insights. “What threats could impact the business? What opportunities exist?”
Internally, leaders should identify what sets the business apart — and where it falls short. Based on this assessment, they can set strategic goals.
With strategic objectives in place, it’s time to develop an operational plan that defines how each goal will be achieved.
“The operational plan has two parts: first, identify the best alternatives to achieve the objectives; second, detail exactly how those alternatives will be executed,” Guerreiro explains.
At this stage, the company has all the information needed to build its financial plan. Guerreiro recommends projecting the Income Statement (DRE) for the planning period, followed by a cash flow projection. These reports should then be monitored monthly to assess performance.
The Master Budget
When it comes to financial planning, developing a master budget is essential. This budget starts with sales projections, which then inform purchasing, tax obligations, workforce needs, and more.
According to Inacilma Rita Silva Andrade — Ph.D. in Knowledge Diffusion, Master in Accounting, specialist in auditing, business economic engineering, and accounting expertise, and professor at the Federal University of Bahia — the advantage of the master budget is that it starts from sales forecasts, allowing for a clearer breakdown of the most critical aspects of financial management.
“When you begin budgeting based on sales projections, you can define your inventory needs. The ideal scenario is to work with minimal or zero inventory, though that’s not always feasible. Inventory is idle money — it represents cost.”
It’s also essential to conduct a demand study and understand your breakeven point and margin of safety. This allows companies to determine their market position, operating limits, and pricing flexibility.
“If product demand is 20 units and the breakeven point is 35, it might be necessary to discontinue that product unless demand can be increased,” she illustrates.
Regular sales team meetings can provide critical insights to improve projections and strategies.
To remain flexible and adaptable, companies should create specific plans for different scenarios: optimistic, pessimistic, and realistic.
The master budget can be built using a simple Excel spreadsheet, and companies can always rely on professional support.
“Business owners can turn to their accountant’s consulting expertise, as they already understand the company’s financial, tax, and asset structure in depth.”
Source: Revista Conmax (Aug/Sept 2022)5
