I’m a big proponent of planning. I believe that planning is a key—not “the” key—to being successful. You still need a value proposition and a business model that makes sense. You can plan all you want but if the business doesn’t work, it doesn’t work. But if you plan, you’ll probably figure out it doesn’t work before you get a long way into it.
So what kinds of plans am I talking about here? The usual stuff, really. Things like a Business Plan, Strategic Plan, a Budget and a Cash Flow Forecast. These types of plans aren’t essential for every business but they are useful for most.
Types of Plans
A Business Plan doesn’t need to be the long, flowery narrative one often sees. I’d rather have a short, less than ten pages, plan with some real substance. The Business Plan needs to describe the market including competitors, how the company is going to compete and address the market, and the marketing and sales strategies. It must also express the value proposition and business model. That is, how do you plan to make money? If you can’t do this in a paragraph or two, you need to rethink what you’re doing. The key personnel and where the capital is coming from must also be there. And more.
A Strategic Plan usually includes the company’s vision, mission and values. Often a SWOT (Strenths, Weaknesses, Opportunities and Threats) analysis is done. The strategy is used to then create a tactical plan and then actual goals and actions.
Budgets aren’t needed for every company but they are helpful for most. Typically they start with a sales forecast, then a staffing plan and then the other (non-staffing) costs are budgeted. Both operational and capital costs (items benefiting more than one year) should be budgeted. I like to do a detailed budget for one year out and a more summarized budget for three to five years out. This then lends itself to the concept of rolling budgets that are constantly being rolled forward and revised with the passage of time.
Budgets should be done on the same basis as your accounting, in terms of cash vs. accrual and using the same account structure. This facilitates comparison of budgets to actual results. Besides this budget, a Cash Flow Forecast is needed to plan for that most precious of assets: cash.
Why Plan?
It has been said that failing to plan is planning to fail. I believe that but there is more to it. First, remember Stephen Covey’s Habit 2: Start with the End in Mind. Second, there is real power in writing down plans and goals. You will achieve more. Third, while your plans, particularly the numbers, will never be exactly right, you will get better at planning with practice. Fourth, having a plan, especially a budget, is efficient because it allows you to manage to the exceptions. Finally, and most important, the thought process is more important than the plan itself. The hard thinking behind the plan is what is really important.
What Do You Do With Your Plans?
Once you have created a plan, any plan, do these things:
Monitor—Review the plan against actual results at least monthly and maybe more frequently.
Evaluate—Is the plan still valid? Does the plan need to be changed or does the operation need changing?
Adjust—Based on your evaluation and judgment, make changes if needed.
Advance—Always keep moving forward; complacency is death to a business.
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