Planning to Plan?

Every Business Needs a Plan

It’s not enough to simply set goals. You’ve got to have a plan to reach them. You, your management team and everyone in your company should know where your company is going and how it’s going to get there.

A good plan becomes the roadmap that guides the work of everyone in your organization. But a good plan in a startup looks a lot different than a good plan in a $100 million company. h3. What Kind of Plan Does Your Company Need? The complexity of your plan should reflect the complexity of your organization and it’s stage of development.

Startup

Every startup starts with a plan. You wouldn’t start a company without having given careful thought to the customers you are going to serve and the products or services you are going to offer. Your plan may even have been a carefully written document – a business plan – that detailed product, market, competitive and financial information.

Once your company opens for business, your plans are usually forgotten in the mad scramble for sales and cash flow. The initial strategic direction of the company has already been thought out. Now it is put to the test.

Often the original concepts of just how your company will grow need to be adjusted to deal with what the real world is telling you. Sometimes, the success of your business depends on how willing you are to throw out your original ideas and adapt to the marketplace.

In the startup phase, it can be dangerous to follow your plan too closely. You are just learning what it takes to make your company run and you cannot afford to slavishly stick to what were, let’s face it, only theories in your business plan.

The only thing that really needs careful planning is cash flow. Running out of cash is like running out of air. If your company is to survive, you must insure that there will always be the cash required to keep it functioning. You need to anticipate your revenues and your expenses and determine when the cash will actually flow from these transactions. A simple spreadsheet, detailed by month, will give you all you need.

So spend your time learning what sells, how to sell it, who is best at selling it, how to really produce your product or service – and don’t worry about detailed plans. In fact, be ready to jettison your original plans if it’s clear they are not working. Just don’t run out of cash.

Growth

Once sales start rolling and your cash flow turns positive, planning needs change. The better your plan, the more likely your company will be able to sustain its growth.

At a minimum, you are going to need a good one-year budget that shows anticipated revenues, expenses and cash flow for each month. A budget gives you the single most valuable management tool you can have – a measuring stick.

Each month your accounting department should prepare a report showing what you thought was going to happen (the budget) what actually did happen and the difference between the two. Then you and your management team can quickly see where things are on track and where there might be problems developing.

This process is the basis of management by exception, one of the basic tenants of modern management. Management by exception means you can manage what’s not working and not worry about what is working. Without this process, you are stuck worrying about everything because you don’t have a measuring stick that highlights problem areas.

Adolescence

As your company begins to mature and your management team gels, you need to move toward a full-blown strategic planning process. In truth, budgeting usually amounts to no more than simply drawing a straight line into the future based on what you were doing in the past. Eventually that kind of planning will get you into trouble.

When I was growing the business I founded, I made the mistake of believing we were planning when we were just doing more of what got us successful. For example, we thought that increasing the staff of our accounting department by 50% to accommodate our anticipated 50% growth in revenue was the way to grow our business.

But we followed that logic right to “the brink” and nearly crashed the entire business. We needed to be thinking strategically, exponentially, not in a straight line. That is what the formal strategic planning process is all about.

Strategic planning is a structured process that guides you through the process of carefully considering: 1.) where your company is now (the environment both inside and outside the company); 2.) where you want your company to be several years from now (your vision); and 3.) how you are going to get your company from where it is today to where you want it to be (your high level strategies).

Maturity

You will know when your company hits the sweet spot in its lifecycle when planing becomes an integral part of the way your company works. When your company is run by a truly professional management team and has enough structure to ensure efficient operations while staying loose enough to adapt to changing opportunities, you will have arrived at management nirvana. Strategic planning is the key tool that will help get you to this stage and strategic planning is the key tool that will keep you at this stage.

Making planning happen

Ask anyone who is managing anything if they feel planning is important and you will get a resounding yes. But it is the rare entrepreneur who actually does something about it. Recently, the Wall Street Journal reported that only 13% of small businesses have an annual budget in writing and only 12% have a long-range plan. Other studies claim that managers spend only about 2% of their time actually planning for the future.

Why? Because it’s more compelling to deal with immediate issues but much harder to carve out time for abstract notions like planning. If you would like your company to be easier to manage, more profitable and more likely to sustain its growth, you should buck the trend and start planning.

Being able to manage by exception is the most immediate reward of budgeting. Freeing yourself up to focus on problem areas rather than trying to identify where the problems are makes you much more effective and reduces stress. Knowing where you are going and having your people know what they are expected to accomplish puts your company in the ranks of the better managed companies.

So make the time to plan. Start now and determine what kind of planning is right for your company. Get everyone who reports to you involved in creating that plan. If you do, I promise you that your company will be easier to manage next year than it was this year.

© 2008, Russell S. Holdstein. All rights reserved