The blog below is a repeat, as was the previous posting (September 4, 2019), and as will be the next posting (October 2, 2019). Combined, the three postings offer a template for developing a 2020 Plan. We are re-publishing these now because developing an Annual Plan is a critically important activity for any small business to undertake, and now is the right time to do it. If you don\u2019t remember seeing these before, perhaps they will encourage you to get serious about creating an Annual Plan. If you do remember them, then maybe they serve as a good refresher. Either way, plan well.<\/p>\n\n\n\n
\n\nIn our last posting, we talked about building an annual plan around three to five strategic initiatives. We also suggested that you open up your planning process to as many of your employees as possible . . . don\u2019t restrict it to only you and your top managers. Make your planning process as inclusive as you can. However, these strategic initiatives are activity-based . . . these are the things we\u2019re going to be doing to move the company forward. But the plan also needs a financial component. It needs what many people call a budget, but what we prefer to call a \u201cprofit plan.\u201d A \u201cbudget\u201d sounds restrictive, confining. It sets the boundaries for what we can and cannot do. A \u201cprofit plan\u201d on the other hand, says \u201cThis is our target for profitability next year, and here\u2019s how we intend to achieve it.\u201d The Profit Plan probably looks identical to a traditional budget, but instead of a document that sets up boundaries, it\u2019s a road map to the financial outcomes we expect to achieve next year. For a few thoughts on how to build your Profit Plan, please continue reading below.\n\n<\/p>\n\n\n\n
Don\u2019t\nproduce a budget. Map out a Profit Plan.\n(Part 1)<\/strong><\/p>\n\n\n\n The starting point for a Profit Plan is also the most\ndifficult part . . . that is, a sales projection for the year. It\u2019s difficult because in most cases, we\ndon\u2019t know with certainty who is going to buy from us, what they\u2019re going to\nbuy, or in what quantity they\u2019re going to buy. \nSo it\u2019s a lot of guesswork. \nEducated guesswork perhaps, but guesswork nonetheless. Still, we can\u2019t have a Profit Plan without\nsome sort of sales target.<\/p>\n\n\n\n The\nbest, most reliable way to project sales is customer-by-customer. If you\u2019ve got thousands upon thousands of\ncustomers, this approach may not be practical, but for most small businesses,\nthat\u2019s not the case. So take a look at\neach customer (probably with the help of your sales people) and ask yourself:<\/p>\n\n\n\n Obviously,\nthis is an exhaustive process, but one that forces us to closely examine our\ncustomers and understand their evolving needs. \nIt also takes our guesswork out of the realm of total speculation. It\u2019s still guesswork, but as noted earlier,\nit\u2019s at least educated guesswork.<\/p>\n\n\n\n Some\ncompanies may try to avoid this customer-by-customer approach using some sort\nof trend analysis. For instance, they\nmay say, \u201cOver the past three years, our sales have averaged an annual 10%\nincrease, so we\u2019ll just assume that trend will continue.\u201d While this approach is better than nothing,\nit doesn\u2019t offer any insights into the dynamics of the company\u2019s customer base\nor market segment. But for some, it may\nbe the only way to do it. For instance,\na divorce attorney may have a good referral network, but doesn\u2019t really have a\ncustomer base that will produce reliable repeat business. He or she can\u2019t really count on the people\nwho divorced last year, divorcing again this year.<\/p>\n\n\n\n At\nthe risk of making this sales projection process even more burdensome, we need\nto footnote everything. At some point in\nthe year, it will become obvious that some of our assumptions are way off\nbase. We will say, \u201cWow! ABC Company isn\u2019t doing one tenth of the\nvolume we expected it to do. What we\u2019re\nwe thinking?\u201d It\u2019s unlikely we\u2019ll be\nable to remember what we were thinking when we came up with our projection for\nABC Company, but if we footnoted why we projected what we did, we can determine\nwhether or not there\u2019s a way to get it back on track. If not, we may have to revise our projection\nfor that company. <\/p>\n\n\n\n OK,\nso we\u2019ve got the sales projection component of our Profit Plan complete, or at\nleast our first swing at it. In our next\npost, we\u2019ll talk about the fixed and variable cost components of our Plan. <\/p>\n","protected":false},"excerpt":{"rendered":" The blog below is a repeat, as was the previous posting (September 4, 2019), and as will be the next posting (October 2, 2019). Combined, the three postings offer a template for developing a 2020 Plan. We are re-publishing these now because developing an Annual Plan is a critically important activity for any small business<\/p>\n