For more than 2 decades, I have been a business owner. I have owned businesses in different industries, with varying numbers of employees, of very different sizes and in locations near and far. With all of these unique characteristics, there is one common theme that has driven the success of these businesses – the need for regular, detailed business planning.
Business planning is a process whereby you (1) evaluate your past performance, (2) honestly assess your current position and (3) outline the future you desire. By going through this process on a regular basis, you are able to step back from the day to day details of the business and study the long-term trajectory of the opportunity.
Year end is an ideal opportunity to work through a business planning process as it is a logical breaking point. Here are some suggestions to make a business planning process valuable for you and your team.
Study the details of the past
As you look at the past of your business, you will realize there are parts you want to repeat, even expand. However, there are probably plans that just did not work out. In your mind, you know these facts on a surface level but digging into the details will likely yield actionable information.
As an example, in 2016 I took a detailed look at the marketing plan in my franchise consulting business. At that time, I was utilizing 4 different primary tactics to raise awareness of my business and attempt to generate new candidates who were interested in a consultation. From a volume perspective, one marketing tactic was generating nearly 50% of new candidates. However, a low percentage of these candidates were moving forward and investing in a business. These were good people and enjoyable conversations but they were not ready to invest. As a contrast, candidates who came to me through a referral were a smaller number of candidates but were only introduced to me when they were ready to take action. Thus, the time investment was very fruitful.
From this detailed study of my marketing plan, I took the bold action of completely terminating the low yielding marketing tactic! It was terrifying but, the result was emboldening! In 2017, I was able to spend more time with referred candidates and ended up increasing my total revenue by 35% by focusing on the right activities.
Take a 360 degree look at your business
Too often in business, we take a planning approach that is entirely focused on customer activity, sales and revenue measurement. A proper business planning process incorporates a complete view of the business.
In your planning process, it is crucial to consider (1) employees – current and prospective, (2) suppliers, (3) competition – existing and future, (4) potential acquisition opportunities and (5) other business partnerships during your planning process.
By incorporating the other constituencies into your planning process, the result will be a more complete and realistic plan for the future.
Outline & study multiple scenarios for the next 12 months
When I read a business plan when consulting with a budding entrepreneur, one of the components that I encourage them to work through is alternative planning. In the process, I encourage them to evaluate parallel plans – “optimistic”, “expected” and “pessimistic” cases.
The reality of life is that is NEVER works out as expected! So, why would we expect our business plan for the year to be smooth travel down a path that we design? In the planning process, it is essential that we outline multiple scenarios and game plan how we will respond to both good and bad elements that occur during the year.
Questions to ask might include:
- How could we satisfy demand if we added 3 giant clients in the first half of the year?
- What happens to our margins if commodity prices change dramatically?
- Where are we able to improve profitability if inflation kicks in?
- Do we have sufficient supplier diversity to protect against unpredictable shutdowns?
All of these questions give you scenarios to study and game planning to prepare in the event that some of these events occur. Will all of these items occur? Probably not. Will something happen that you did not see coming? Almost certainly!
Plan required investments based on growth
Most of us do not go into a new year in our business or our personal lives without planning for “growth” in every facet of who we are and what we do. So, if we are planning to “grow” in the new year, we must be prepared to make the appropriate investments in advance. Investments in business take many forms but the 2 that require most attention are team members and assets.
As all business owners know, it is essential to build a team that is both highly skilled and a great cultural fit. This combination is challenging to find and it takes time – often a LOOOOOONG time to find the right person to fill a key position. So, layout a recruiting and hiring plan and give yourself enough runway to find the right person before you actually need them. It is better to hire early and have excess capacity than to hire late and always be playing catchup.
The addition of assets to a business requires an equal amount of advance planning. The process is longer than you we want it to be. You need to build a spec, identify vendors, negotiate prices, place orders, await delivery, install equipment, test the implementation and then, finally, enjoy the investment! Thus, make sure that you are looking downstream at potential capacity constraints and laying the groundwork now to avoid a limitation later.
Look down the long road
The final element of business planning that I want to discuss is long-term planning. During a discussion last week with one of my business partners, we discussed at what point we would consider exiting a business. To be clear, we have no intentions at this point of exiting. But, the discussion was an appropriate one.
As part of an annual planning process, I encourage you to think out 3-5 years and dream about what you want your business to be at that point in time. Once you have envisioned the goal, work background to think about what actions you need to take to realize that goal.
- How many customers do you need? Do you need to diversify into a new segment? Do you need to sell to different types of customers within the same segment?
- What employee base will you need to service a larger company? What key hires do you need to consider and when?
- Are you considering a sale of the company at some point in those 3-5 years? If so, who are the potential buyers? What could you do to position yourself most favorably to be acquired?
Business planning is a central part of long-term business success. By working through a regular, deliberate planning process, you will have a deeper understanding of your business today and a clearer picture of the future opportunities and how to realize them.