Every organisation will have its own format and process for producing an annual business plan. The purpose of this article is to provide some essential steps on how to make the plan, and the process behind it, work for you and not the other way around. It comes from the basic truism that a strong business plan is fundamental to good governance, and that: :if you fail to plan, you plan to fail."
Why prepare a plan?
Preparation of a business plan is essential to align stakeholders in your business internally and externally. Internally, the plan is the key document to drive the business and the team on a daily, monthly and annual basis. Externally, banks, investors and others need a business plan to show them where the owners intend to take the business in terms of growth and profitability. A comprehensive business plan and historical financials are essential to value a business for sale, to attract new partners or to seek external finance. The sooner you install business planning processes, the sooner it is ready for those opportunities.
Connect the plan to vision
A good business plan is not a stand-alone document but a logical output of the owner's vision. Therefore, take time to articulate a clear vision for your business with specific objectives for the next three years. During the preparation of the plan, keep checking that it stays connected to the vision. Lastly, you cannot expect your team or partners to properly evaluate the plan and sign-up to it, unless you have articulated your vision for the business AND communicated it to them.
The basic elements of a business plan
The precise format and content of your business plan is specific to the needs of your business and the resources available. The internet is a rich source to download templates but as a minimum, it should contain the following basic elements:
+ Vision Statement
+ Core Strategies
+ Detailed build-up of revenues and costs (be careful to incorporate seasonal fluctuations)
+ Income / profit & loss statement (three years)
+ Balance sheet (three years)
+ Cashflow forecast (12 months)
+ Break-even analysis
Risk management & contingency planning
Good governance requires that the annual business plan is assessed for the attendent risks and to plan for contingencies. Take an objective look at the forecast numbers and list all the risks in the business that could impact the plan. These could include loss of key accounts, suppliers failing, currency risks, country risks, cost escalations and so on. List those risks in a document, and assess the probabiblity of them happening: high / medium / low. Then, list possible responses or options you have to manage the business in the event that one or more of these happen and incorporate the final document into the plan. This process will give you peace of mind, and the list, essentially a basic risk register, should be reviewed regularly throughout the 12 months of the plan.
Challenge the plan
Business plans can lack objectivity or may be too ambitious. To adress this, the written plan should be challenged by colleagues, trusted advisors or friends who often come up with incredibly helpful advice and insights that may have been missed. Cost assumptions or revenue projections can be sharpened to make the plan more challenging, realistic and achievable. Yes, it can be a daunting prospect to share the plan for all sorts of reasons but if you don't want to share the plan and get the benefits of an outside perspective, the question must be asked and honestly answered, why not?
The preparation of a comprehensive business plan is a key enabler for the success of your business visible evidence of good governance.
Engaging key staff, investors and directors in the planning process is critical, not only for the formal approval and documentation of the plan but more importantly, to ensure commitment and alignment to the plan. By involving key stakeholders in the process early on, they will make their contributions most effectively and put their skills and talents right behind it. Be careful to take on board all the inputs as far as possible, and to discuss and resolve points of disagreement openly. The final written plan should be signed and formally approved by the board and / or owners.
The business plan drives two aspects of performance management. Firstly, the preparation of monthly management accounting information, showing variations to plan, is a formal check on progress against the plan milestones so timely corrective action can be taken. Secondly, individual performance objectives for your team, normally prepared during the month of January, should connect directly ot the business plan strategies and metrics. In turn, managing the performance of your team against their accountability and / or bonuses is objective and transparent.
Manage the process
Careful time management of the planning process will ensure it gets done and will not distract you unduly from the daily operations and making money. It should take around eight weeks to complete the process so the final is ready and signed-off in December, ready to guide your business in 2014. Now is the time to put a business plan time-table together for the process, involving your team or advisors so they play their part, stay on track and commit!
The preparation of a comprehensive business plan is a key enabler for the success of your business and visible evidence of good governance. Investing time and effort in the process will engage your team, align your stakeholders, and be an essential tool to keep you on track! Don't fail to plan, and Good luck.