10 reasons why planning is essential

So why Plan…..

1. To set a path and make sure you stick to it:

A business plan will guide you to your destination, by setting targets for managers, testing the feasibility of the business idea and make sure resources are employed at the right time.

Setting a plan involves clarifying your vision and setting specific objectives, goals and operational targets, which if met, will keep the company on the right path. Such goals and operational plans, when correctly aligned with your vision, will drive success.

A good process will ensure that the whole company is aligned and set in the right direction.

2. To uncover weaknesses and opportunities:

Strategic Planning forces the leaders to look at creative ways of achieving goals. If driving to Edinburgh takes too long and ties up valuable resources then you could “invest” – consider the train or a plane. This analogy is simplistic but planning the business forces managers to look at alternatives, rather than ploughing on regardless of the effect on cost and profit. Out of the planning process new opportunities will emerge that deliver more profit.

A plan will force you to think strategically and in detail about your business and its current resources (employees, cash, machinery, and expertise), competitive market place and risks. It is important you do benchmark against competitors you respect. This is certain to deliver insights that will improve your business.

3. To get backing and buy in from backers and financiers:

A good business plan will present the business in a credible way and will be instrumental in convincing investors and lending institutions to fund or even buy your business. The right plan would unlock funds for investment OR convince a buyer to pay top dollar so you can get the reward you deserve.

4. To make sure you focus on the right things…

Too often owners say they are too busy to plan…

If you don’t plan where you want to go, don’t be surprised if you end up somewhere else.

Research shows that companies who have a business plan are more likely to increase profit than those who don’t. As it is often said… “To Fail to Plan is to Plan to Fail…”

If business planning is a bad idea why do FTSE 100 companies and venture capitalists spend so much time making plans & reviewing plans?

If FTSE 100 companies have 5 year plans – maybe all companies should?

How do we plan then?

5. Get in the right mind-set:

Business planning takes time, resources and expertise. Some may say there are too many imponderables to make a useful plan, or they don’t want to restrict themselves to one particular plan, they might want to be flexible and react to market conditions and a plan or budget would restrict their thinking too much. A good business plan should allow for uncertainty and risk, and should be easily adapted to changing circumstances.

You can even set up your business to be flexible – for example – rent don’t buy….

6. Set aside time:

The best way to get a quality analysis of your competitive position is to set aside quality time. Time should be set aside in one or two hourly chunks, where day to day issues are delegated temporarily. Preferably this should be away from the office to allow focus and clear thinking.

A series of meetings that are well organised with a planned agenda and the right staff can make this process painless, maybe even fun.

7. Brainstorm strengths and weaknesses of the company

Looking in depth at the competitive advantage held over other companies in the market, how the prices compare and asking is the value proposition offered to customers sufficiently persuasive? If it is now.. how do you maintain this position ?

Taking time to address these fundamentals will focus the business in the right way and set the scene for planning further.
What will your business be famous for?

Giving the best customer services or making the best product or being the best value? Profit is the result of good business – in what area will you be the best ?

8. Create a financial model:

A strategic plan can also be used to feed assumptions into a financial model that sets expenditure against income and calculates closing cash position and profit/loss at the end of each period (usually monthly). The financial model will calculate how much cash you are likely to need to finance growing working capital, how much your objectives will cost and when you can expect to achieve them.

However, the model is worthless without quality thinking as to how the business will succeed or grow. The results are only a function of the assumptions made. The thinking and planning about how to succeed and how to achieve the objectives are critical.

9. Set Financial Targets:

The vision should be converted into a financial target, usually profit, with the required income (sales) calculated to achieve that target when matched against costs. Timelines should be set for tasks and outcomes, milestones should be established and tracked against. Key people should be identified and the plan should extend over 3-5 years.

10. Get expert help:

Business planning should be seen as an investment, devoting upfront time and resources will reap benefits far in excess of the initial cost. So if you lack the time or expertise, then seek help.
Often a few days’ work can make a huge impact on the next 3 – 5 years of a business. Even having a plan can have a huge impact on the value placed on your business.

Building a financial model is the easy bit. The real value is in helping you think through how you can improve your business and “win” in a competitive market.

A good Finance Director will get to know the business, to understand its cost drivers and market risks and be able to present the model to a business owner, or bank, investors and other stakeholders in a way that will make it accessible and motivating and explain the key levers that drive your profit and cash.

This can add huge amounts to your annual profit and cash flow. A well thought through plan will also encourage an investor to pay a higher multiple of annual earnings to buy the business.

How can FD4 help me?

FD4 part time directors have extensive experience of building business planning models in a variety of complex organisations. FD4 can help you set your vision and create a pathway to realise it. At FD4 we help our clients improve performance and prepare them any future options they want to take.

FD4 will get under the skin of the company, forensically extract the prime drivers of costs and profit and accurately translate business objectives into hard cash. This model can then act as a benchmark to assess performance to target.

By adding sensitivity analysis to the model, FD4 can show you how changing costs and prices and other business parameters impact on the plan in different scenarios. In seeking to understand the business FD4 will analyse the risks to your business and the strategic plan, mitigate those risks and ultimately make sure you arrive at your destination.