The annual business plan and budget process is a key part of running a business successfully and achieving a strategy. It provides a discipline for the management to thoroughly review progress and to set objectives - and for the directors/holding company to commit to supporting the budget and investment plans.
A business plan is necessary for three primary reasons:
The business plan/budget is a living document that should be continuously reviewed in light of the business environment and actual performance. In addition there should be formal reviews on a quarterly basis. This enables the directors to oversee business performance.
Business planning should operate on a rolling five years, while the budget is likely to be required only for the coming financial year.
For a business plan to be effective it should be owned by those who will have to implement it. So, it cannot just be delegated to a consultant. But an experienced business facilitator can add value to the process, whilst ensuring that ownership is in-house.
guide managers/directors through the process
draw out strategies from the participants
capture the information
record it in a structured manner.
The words of the business plan are important; they explore issues and make commitments to action. A facilitator can ensure that they are carefully chosen and understood. The figures in the budget merely represent an interpretation of the results of those actions. But the spreadsheets that lead to the figures will identify the consequences of decisions - the process is iterative until a plan and budget are reached that can be approved by the directors.
The objectives of the business plan are first to develop and communicate a plan of action that will achieve the company's strategic objective. Then to provide a means of monitoring progress towards that objective and of stimulating alternative action if the objective is unlikely to be met by the original plan. These cannot be achieved unless the plan defines the strategic objective and includes benchmarks or performance measures at key stages during the year.
The plan should include reviews of internal resources and the external environment, and define measures of quality and customer satisfaction.
The plan is likely to focus on: -
revenue - income, direct costs and overheads
capital - expenditure, depreciation
Financial measures will include return on investment and margin. Targets for growth may well include turnover - but in this case margin must also be monitored.
Don't allow a focus on the figures to confuse the significance of the words. It is only actions – described by the words – that generate revenue.
The planning process is a valuable and exciting exercise that can be a major contributor to team building and a means of developing ownership/commitment to the plan. Involve people, it should end up as "our plan" not "their plan imposed on us".
There are various exercises that can be helpful in the planning process:
Analysis of current year financial results
SWOT analysis - strengths, weaknesses, opportunities and threats
PESTLE analysis - political, economic, social and technological, with legislative/regulatory and environmental
Balanced scorecard - analysis of the impact of achieving objectives from a financial perspective, a customer perspective and an internal perspective, and on innovation and learning, together with identification of critical success factors and performance measures.
Brainstorming - for alternative scenarios, opportunities, strategies
If the company provides different services or operates in different niche markets these exercises should be checked for each.
For a business plan/budget exercise you should focus on: -
Review of current year as a basis for making decisions about the future
Objectives and strategy
Action plan and benchmarks
A business plan is a tool for decision making - remember this and remember who it is written for - then design it to suit.
A basic business plan has several key elements:
Description of the business
Description of the target market
Analysis of the competition
Description of the management team
As a guide, a typical business plan would have the following structure: -
Name of the business
Address of the business
Nature of the business
People in the business
Marketing and sales strategy
Profit and loss forecasts
Cash flow forecasts
Capital expenditure plans
Funds required - financial base
Management information systems
Action plan - key decisions - target dates
Remember, your business plan is the tool that you will use to manage your future and on which your performance will be judged. It will be the basis on which you negotiate for resources.
It should be imaginative, challenging and achievable.
Preparing it will be a team effort. Enjoy it!
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