Business planning is often the difference between business success and not. Still most companies fail to plan properly and even more fail to take action on their plan.
In the final part of our three-part series on successful business planning we will look at how to implement your business planning to take quick action and respond effectively when things change.
Once you have your business plan it is time to start the process of taking what's in your (and your team's) head and reflect it in the model. A business model does no good if never implemented.
Meet with your senior team to talk about goals. Lay out your vision. Get their inputs. Start a process of translating these goals into the model. Do it with them. The idea is that by going through this process, your team can begin to see the business like you see it.
They will understand the impacts of hiring new people and buying new equipment. All of you will get to a new level of understanding of the business. They will know how the business must perform to justify those investments, and know what each part of the business — including the team members themselves — must do to achieve those goals.
This can be a very powerful process of unlocking the potential of your business and getting the shared commitment from your team to get there.
Once you have the multi-year plan built out, take a more detailed look at the first year. Take that year and break it down into 12 months. Month One should be close to where you are now, and Month 12 should be close to where you need to be at the beginning of Year Two.
Again, take some time to make sure it makes sense (meaning it is achievable) and that your team has bought in because this will become your budget for the next 12 months.
Another incredible benefit of the model is the ability to align bonus compensation to the plan and use the model to structure it. You have the ability to create a bonus plan that achieves the twin imperatives of affordability for the company and powerful alignment of the team's focus to your goals.
Once you have that built out and validated, then you can upload this into your accounting system. You can create monthly reporting that will allow you to compare actual to budget.
This is why it pays to begin with the end in mind by building out your model based on your chart of accounts. Having this constant framework of comparing actual to budget is critical for executing your plan. It allows you to constantly monitor areas in which you are on or off track with a high level of precision.
It does, however, require that you have solid accounting that is timely, accurate and relevant.
Remember, even a 1 percent variance on a $5 million a year business is $50,000 per year in cash flow to the bottom line. That's a lot of beans and is why an investment in solid accounting and business planning is probably the best investment you can make.
If you have followed our series, you now have the capability to provide yourself and your team with a truly seamless view of the business from the past to the present and into the future.
You have a tool that is useful, not only for setting your budget once a year, but also to put into action when things change to help you and your team understand clearly what needs to happen quickly.
This applies to both positive and negative impacts. Money is won and lost in the interval of time between impact and action. This is the power of the plan!