It’s a question I was asked recently by a client who owns a company worth over €1 million. “Do you believe in business planning?” At first, this struck me as odd because for me the answer is obvious; yes! But it gave me reason to pause because there was a successful businessman genuinely questioning something which I understand to be fundamental. This only prompted more questions, namely “Why do I believe in business planning?” and “What does business planning look like to me?”
Businesses that plan get better results
With my experience of working in and alongside various companies in all kinds of industries, I can say with confidence that businesses that plan get better results. However, you can overcook it.
The problem with business plans
Business plans should always be notably more beneficial than they are a hindrance. If the thought of business planning gives you flashbacks to an onslaught of Excel spreadsheets and valuable hours of time disappearing into the ether, then something has definitely gone wrong! This is not what I mean by business planning.
This issue probably stems from the business plans that banks and investors tend to request, with their often very specific and sometimes downright peculiar specifications. If you find you have to write one business plan for your investors and another “real” one for yourself, then it’s understandable if you are a bit disenchanted with the concept. But I’m prepared to champion the business plan, despite the naysayers, because I’ve seen the results and they’re worth it!
The 3-year business plan
I believe in having a picture of where you are going for the next three years. However, year two and year three do not have to be detailed. You need to be flexible while still having defined goals. Your plan for year two could simply be “Year 1 plus 20%” with perhaps a few overarching objectives such as, “In Year 2, we’ll open a second office.” It should be treated as a trend in a general direction rather than boxes to be ticked off.
Year one, on the other hand, should be given more thought. I advise my clients to do a half-day of business planning around November. By that point in the year, you have a very good idea of how well the business has performed and you have 10 months’ worth of figures behind you. This is when I sit down with my clients and use the information to make projections for the next 12 months.
After that, we add improvements, strategies, and targets for every month based on these projections. Normally, we start with sales opportunities, then the resources required to make the sales happen, and then the KPIs. This should all take just two or three hours.
Do you know if your numbers are good or bad?
The point of financial projections and budgeting (aka business planning) is to be able to make comparisons so you can easily understand if your numbers are good or bad. When you have something to compare against you can then set targets that make sense and aren’t just pulled out of thin air.
Otherwise, your numbers are left bobbing in space, without context and without meaningful measurement. Are 30,000 sales good? Well, if you made 40,000 sales during the same period last year, it probably isn’t. But if you made 15,000 sales previously, you’ve doubled your profit!
All in all, my answer is the same – yes, business planning is worth doing. But don’t let it drive you crazy. Keep it simple. Do it once a year and act on the difference between past and present to make more informed business decisions.