22 Oct Benefits of Planning – First part of a series
Whether you’ve just started your business or your business has been operational for some time, it’s essential to plan and tightly manage its financial performance. Creating a planning process is the most effective way to keep your business and its finances on a path for success.
In the first of a few blog posts, I’ll discuss a number of points when it comes to planning. First off, many people tend to use the words planning, budgeting and forecasting interchangeably, I view them as different things. A plan is what you are PLANNING to do. A budget is typically centered around managing expenses. A forecast is a shorter view of what you reasonably expect to happen. Typically, a forecast is only reliable over a shorter period of time, usually a quarter. What is important is that the process drives critical thought, questions, and review of the business and its performance in relation to plan.
Plan for business success
• The benefits
• What to include in your plan
• A typical business planning cycle
• Budgets and business planning
• Benefits of a business plan
• Creating a budget
• Key steps in drawing up a budget
• What your budget should cover
• What your budget will need to include
• Use your budget to measure performance
• Review your budget regularly
• Planning for business success
When you’re running a business, it’s easy to get bogged down in day-to-day problems and forget the bigger picture. However, successful businesses invest time to create and manage budgets, prepare and review business plans and regularly monitor finance and performance. They spend the time to work ON the business and not IN the business. Structured planning can make all the difference to the growth of your business. It will enable you to concentrate resources on improving profits, reducing costs and increasing returns on investment. Even without a formal process, many businesses carry out the majority of the activities associated with business planning, such as thinking about growth areas, competitors, cashflow, managing expenses, and creating a profit.
By converting this adhoc, in your head process, into a structured process to manage your business’ development doesn’t have to be difficult or time-consuming. The most important thing is that plans are made, they are dynamic and are communicated to everyone involved. Since plans are dynamic, they need to be revisited, at least quarterly. You also need to measure actual results against the plan or budget and use that as a tool to drive discussion and review how your business is performing.
The Benefits
The key benefit of business planning is that it allows you to create a focus for the direction of your business and provides targets that will help your business grow. It will also give you the opportunity to stand back and review your performance and the factors affecting your business. Business planning can give you:
• A greater ability to make continuous improvements and anticipate problems
• Sound financial information on which to base decisions
• Improved clarity and focus
• A greater confidence in your decision-making
What to include in your plan
The main aim of your business plan is to set out the strategy and action plan for your business. This should include a clear financial picture of where you stand and expect to stand over the coming period. I like to use a running 12-month plan that you review quarterly and add the next quarter to the plan. Your 12-month business plan should include:
• An outline of changes that you want to make to your business
• Potential changes to your market, customers, and competition
• Your objectives and goals for the next 12 months
• Your key performance indicators
• Any issues or problems
• Any operational changes
• Information about your management and people
• Your financial performance and forecasts
• Details of investments you want to make in the business
Business planning is most effective when it’s an ongoing process. This allows you to act quickly where necessary, rather than simply reacting to events after they’ve happened. This is why monthly reviews and quarterly updates are important.
In my next blog post I will continue by discussing the planning cycle, the differences between budgets and business planning, and how to start the process.
Want to know more before the next post? Contact A Fractional CFO today to get started.