The planning and control cycle – the key to continuity

In this article, we discuss the importance of integrating financing into a company’s planning and control cycle. This integration is essential for ensuring the continuity of funding and the efficient management of financial resources.

The essence of the planning and control cycle 

Nearly every company is managed through a planning and control (P&C) cycle. This cycle typically consists of the following documents:

• Strategic plan, outlining the company’s direction for the next 5 to 7 years, translated into a long-term financial forecast;
• Annual plan, which translates the strategic plan into goals and activities for the coming year, along with an approved budget;
• Management reports, which monitor the achievement of objectives and actions, providing a basis for making adjustments; and
• Annual report and financial statements, which provide both internal and external accountability for the previous year, bringing the annual cycle to a close.

Common pitfalls 

As financing advisors, we view financing as an indispensable part of the P&C cycle. However, in practice, we rarely come across a documented, up-to-date financing policy. Instead, we often find fragments of a financing policy scattered across various documents, alongside an informal policy held in the minds of key executives.

The approach to financing is often “event-driven.” Financing is only considered when a major investment or acquisition arises. This is also reflected in the financing that is obtained, which often mirrors the history of past investment decisions. This seldom results in an efficient financing structure or clearly aligned financing documentation.

This reactive approach to financing inevitably leads a company to face the limits of its financing capacity. Unfortunately, these limits often only become apparent after an investment decision has been made or during an acquisition process. At that point, the company is often left relying on its main bank or lenders, hoping for a favorable outcome on reasonable terms.

A proactive approach: P&C Cycle 

We recommend that companies develop their financing policy alongside the strategic plan. The financing policy should outline whether, and on what terms, the strategic plan can be funded. A key element is the desired capital structure – the balance between equity and interest-bearing debt. The financing policy acts as a litmus test for the strategy. If the strategy and financing do not align, either the assumptions underlying the financing policy need to be revised, or the strategy must be adjusted.

Keeping the financing policy relevant and up-to-date 

It is essential to keep the financing policy relevant and up to date by incorporating it into the development of the annual plans. This forces the company to think ahead about financing and take action if needed. For example, how do planned investments fit within the scope and terms of existing financing? Is an expansion or adjustment required, and what are the steps and timelines for this process?

Conclusion: the importance of integrating financing 

In summary, integrating financing into the P&C cycle offers several advantages. It acts as a litmus test for the strategy and raises awareness among executives and the organization about the importance and limits of financing. It makes the financing assumptions explicit and ensures timely action. This leads to greater control over the financing market, allowing more time and space for a competitive selection and negotiation process.

Get in touch 

If you would like to optimize the continuity of your financing, receive specific advice on how to integrate your financing policy into the planning and control cycle, or get a second opinion on your current financing, please feel free to contact us. We are here to help!

Rolf Michon

Managing Partner Debt Advisory