Financial analysis of operating plans: review before approval

Financial analysis of operating plans tests whether proposed revenue, staffing and expenses fit together before anyone approves the commitments. Start with historical actuals, rebuild the plan from its operating assumptions and check that the business can deliver the workload. Then examine cash timing separately from profit.

This is a decision about the proposed plan. The broader financial analysis process also evaluates reported results after the business has operated.

Start with comparable exports

Bring a departmental plan workbook, the most recent comparable closed-period ledger, payroll totals and the export supporting sales volume. Keep customer receipts, supplier payments and capital purchases available for the funding review. A plan can earn an accounting profit while requiring cash before its customers pay.

The SBA's business-plan guidance calls for historical financial statements alongside financial projections and recommends more detailed monthly or quarterly projections for the first year. That principle applies to an internal approval review: show what happened beside what the manager expects to happen.

Agree the following before comparing amounts:

• The department and account mapping, including where shared costs sit.
• The period, business days and operating season being compared.
• Whether staffing means paid employees, average full-time equivalents or productive capacity.
• Whether the plan includes payroll taxes, benefits, overtime and expected hiring dates.

Keep capital purchases separate from operating expenses. The capital versus operating budget distinction prevents an equipment payment from being mistaken for a recurring monthly expense.

Rebuild the plan from its drivers

Consider a US field-services company reviewing a proposed monthly plan. The actual column is a comparable closed month, with no seasonal adjustment required for this illustration. Loaded employee cost includes salary, employer taxes and benefits; delivery labor is excluded from the nonpayroll cost per job.

Put these assumptions in columns A through C, with the header in row 1:

These are illustrative company assumptions, not industry benchmarks. Every planned increase needs its own explanation: a hiring request, supplier quote, signed order or operational improvement that management can examine.

Build the following output below the assumptions. Amounts are exact dollars; percentages are rounded to one decimal place.

The actual formulas use column B instead of C. Revenue grows by $50,000, or 20.0%, while operating profit increases by $24,800. The proposed profit looks attractive, but the capacity line changes the approval discussion.

Test the assumption that makes the plan work

The proposal requires 1,200 jobs from staff whose supported capacity is 1,100 jobs. The gap is 100 jobs. Required productivity rises from 100.0 to 109.1 jobs per FTE, a 9.1% increase using unrounded figures.

Calculate the gap and productivity change directly:

=C2-C20
=(C21/B21)-1

Ask operations what supports that change. A shorter route, less rework or a documented scheduling improvement might support it. A larger sales target does not establish that the work can be delivered.

Change only the delivery staffing assumption from 11 to 12 FTEs and recalculate:

The extra employee costs $6,800 and reduces operating profit by the same amount. The corrected plan still improves profit over the actual month, but approval now rests on a staffed delivery plan rather than an unexplained productivity gain. Operating versus financial leverage explains why committed operating costs make changes in sales more consequential.

Reconcile costs and review the funding calendar

First prove the original proposal: $50,400 + $74,800 + $32,000 + $48,000 = $205,200 of operating costs. Add $94,800 of operating profit and the result returns to $300,000 of revenue. The actual cost lines must also reconcile to the closed ledger, with any adjustments listed separately.

For a ledger sheet named Actuals, put department in column A, period in B, account in C and amount in D. With department in F2, period in G1 and account in H2, aggregate the matching amount in Excel:

=SUMIFS(Actuals!$D$2:$D$5000,Actuals!$A$2:$A$5000,$F2,Actuals!$B$2:$B$5000,G$1,Actuals!$C$2:$C$5000,$H2)

Microsoft documents SUMIFS as adding values that meet multiple criteria. Covirage is not affiliated with Microsoft.

Next, place customer receipts and committed payments on a monthly calendar. Include payroll dates, vendor terms, taxes, debt service and capital purchases. Do not approve an annual profit figure as evidence that every intervening month is funded. Record the assumption owner, supporting evidence and any unresolved funding condition alongside the approval recommendation.

Where it goes wrong

• Comparing unlike periods. A peak month may support more volume without proving that every month will do so.
• Treating headcount as immediate capacity. Hiring dates, training and absence can leave paid staffing above productive staffing.
• Counting labor twice. A per-job cost that already includes wages cannot be added to the full payroll again.
• Approving unsupported productivity. Higher output per person needs operational evidence and an accountable owner.
• Using profit as available cash. Receivables and purchase commitments can absorb funding before the plan produces receipts; review working capital alongside earnings.

Review your own operating plan in Covirage

Bring your plan workbook and a sample of your own historical ledger and staffing data to Covirage. Covirage maps the columns, its tools compute and check the comparisons, and the external AI model explains the results with every figure traced to its rows. Create a free Covirage account, then set up your business and bring your own files.

See Covirage for finance teams for the finance reporting context.