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To Plan or Not to Plan…. That is the Question !
by Michael D. King
It has often been said that if a small business is failing to plan, they’re planning to fail. So often, an entrepreneur begins a business as a result of their technical expertise and knowledge of their niche in the marketplace. At the point of start-up, the financial institution(s) require a detailed business plan before any loans are approved. It’s a painstaking process, and provokes critical questions that will "set the sail" for the fledgling business. It may be done with the assistance of the business’ accountant, and possibly the banker(s). Assuming that the process is successful, the bank will approve the loan, the owner(s) express a sigh of relief, and off they go ! The Business Plan gets tucked away with the rest of the start-up documents.
Once the business is underway, the owner(s) focus their energy on "getting the daily wash out". Although the original business plan was carefully thought out, it rarely becomes a working document for the day-to-day or monthly activities. The urgent often supplants the important. There may not be routine monthly financial reporting in place, or staff meetings where the senior managers are able to see and discuss the whole financial picture. This oftentimes creates the "silo effect", whereby managers are simply focused on their individual piece of the business and do not interact with other functional managers, nor understand the impact of their activities on the bigger picture. Annual Operating Plans are seen as something that only the "big companies" do. There never seems to be enough time to allocate resources to its development.
For a business to effectively move forward and enjoy sustained profitable growth in today’s competitive environment, it takes a "ready-aim-fire" approach, as opposed to the "ready-fire-aim" philosophy that many firms default to. Without a effective Annual Operating Plan incorporating all of senior management’s input, the best that a business can hope for are pleasant surprises along the way. Successful results are rarely the result of good luck. A company doesn’t generally get what it wants, it gets what it focuses on.
Does an Annual Operating Plan make sense for any size business ? Absolutely, as it provides senior management with a tool for self-analysis and the development of a future strategy. If done properly, it forces some of the hard questions to the surface, such as :
Can our current level of fixed and variable costs support the anticipated future revenue stream?
What is the break-even point for our business?
What is our Market Share and how is our market segmented ?
Have we identified the Key Industry Trends for our business over the next 3-5 years Technology trends Pricing trends Customer Analysis Competitor Analysis What are our industry’s Key Success Factors ? Price Cost of ownership Utilization of available technology Delivery performance Delivery flexibility Short lead times, etc.
What is our current product portfolio, and how do we compare to our competitors ?
What are the strategic challenges and objectives over the next 3-5 years ?
What are our Performance Improvement Plans over the next 12 - 36 months ?
What are the gross margins by product line / market segment ?
What is the projected cash flow, inventory levels, and balance sheet structure ?
As evidenced by the above sample questions, the development of an Annual Plan forces the organization to look within each functional area to question how well each performs. As the "onion gets peeled back", questions are invariably raised which ask "why do we do what we do", and "how do we do it better". It is these probing questions that may force both policy changes, as well as management strategies, to chart an alternate course for the business.
Oftentimes the Annual Plan preparation defaults to the Accounting group, who is viewed as the "keeper of the keys". Quantifying the assumptions made during the planning process is their main responsibility. However, the budget should never be developed in a vacuum. It is only when the entire management team becomes involved in the process that a successful budget is developed, with each manager assuming ownership for their part.
Although there are many areas within the business which require management’s attention, the development of an Annual Plan is among the most critical. Time invested in developing an "achievable plan" will provide management with the critical tools to "check the pulse" of the organization, and properly develop the strategies to further grow the business. It also provides management the opportunity to view the business from a different altitude, allowing for more objective strategy development. Remember, "efficient management without effective leadership is like straightening the deck chairs on the Titanic".
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Mike King is a successful entrepreneur and guest contributor to Lysis International, a sales management consulting firm based in Tampa and specializing in Sales, Marketing, and Customer Service.
