Services firms and retailers: does financial planning work the same way?

Services firms vs. retailers: should you do financial planning the same way?

No, not at all: you need a different approach, different data and different tools. Let’s see what the key differences are!

How does planning work for services firms?

If you run a services firm (marketing, construction, technology, design, architecture, consulting etc.):

1. Long cycles: “contract to cash” cycles are very long. It can take 6 months or more from the moment you sign a contract with a client until you receive a final payment.
2. Transactions, not numbers: you can predict which client will pay how much and when based on what has been agreed in the contracts and how is service delivery going. So your cash flow forecast consists of actual planned transactions rather than abstract numbers and will look like this:

3. Past data is optional: availability of data for prior periods is not essential. Sure, past data can tell which clients usually pay late. But when it comes to predicting how much cash are you likely to receive, it does not matter what happened 6 or 12 months ago. What matters is what contracts have you signed or are about to sign and what progress have you made with delivering you services for each of the contracts.

What’s different for retailers?

If you run a retail company, it is almost polar opposite:

1. Minutes, not months: it takes just a few minutes between the moment your client decides to buy until they make the purchase and pay for it.
2. Volumes, not transactions: it is impossible or extremely difficult to tell which clients will make purchases and what will they buy. Your forecasts will show expected sales volumes rather than planned transactions.
3. Past data matters: therefore, availability of past data is critically important as it helps to detect seasonality and other trends.

What technology tools to choose?

Due to above mentioned differences you also need different tools for doing your forecasts. 

If you run a services firm, Tailwind (tailwindapp.eu) will be by far the best choice: not only does it show every day and every transaction, but it will also automatically create your forecast and automatically update it every time you log in.

Forecasts need to be updated as assumptions change – and with Tailwind’s “drag and drop modelling” it happens “at the speed of thought”.

Therefore, just 5-10 minutes per week will be enough to be in control! And don’t just take our word for it, here’s what the users are saying:

If your company is in the retail business, you will need other tools to be in control of your cash flow. Before choosing the right one, we recommend to think of how you want to do your planning – it will help to understand which one is right for you!