Make time for strategic planning
All entrepreneurs seem to start their journeys the same way: they have a great idea and they are resourceful enough to turn it into a business. Unfortunately, once the idea is off the ground, entrepreneurs often become too involved in the day to day processes to dedicate time to strategic planning. In order to ensure that company goals do not get lost along the way, it is crucial to take the time to plan where the company will be in five, ten, or even twenty years. No one should start a business without a vision of what their company should look like at some point in the future.
Taking the First Step
The first step is to clearly define your personal objectives for the future. This should include an in- depth evaluation of your current income requirements, retirement savings plans, the future for your spouse and children inside or outside the business, and the amount of personal vacation time you want. When setting your objectives, be reasonable- they should be enough to propel you forward, but not so much that they seem unattainable.
Quantifiable goals are preferable to qualitative goals so that you can have a clear measurement of whether or not you are on track. In order to be effective, goals need to be specific, achievable, and measurable. Common quantifiable goals include sales volume, gross margin, profit before income taxes or debt repayment.
As most businesses are cyclical, it is essential to establish three-to-five-year goals that take into account how progress is going to be made in smaller periods, such as each quarter. Frequent reviews will monitor progress and allow any redefinition of the goals to meet the changing reality.
You Are Not Alone
You will not be able to achieve your business goals without considering your own abilities and shortcomings, future staffing needs, and any assistance from outside consultants to supplement missing skills. Your staff members should be consulted to determine whether existing equipment, hardware, software, physical location, transportation, financial services, and communications will be able to support the future projections.
Objectivity is essential to good planning. A Chartered Professional Accountant (CPA) who understands your personal needs, your business, and the financial information required to produce meaningful projections should be part of your team. Your CPA will be able to help you map the future, as well as support you along the way.
Who Are You?
A frequent shortcoming of businesses is that they often try to be everything to everyone. Thus, clients and customers become unsure of the ability of the business to support all the products they sell. As part of the planning process, ensure you have a firm grasp on your business and its capabilities by asking yourself the following:
- What business are we in?
- What business do we want to be in five years from now?
- What do we do best?
- Who are our main customers and what do we provide to them?
- What services or products provide the most return on investment of staff and production facilities?
Having a firm grasp on these five areas should show you where to concentrate your production and marketing energies in order to reach your goals.
Once you have determined your goals, it is necessary to project costs and initiative requiring funds. Such information includes:
- Production costs, either by unit or as a percentage of sales, including labour, material, transportation, and amortization of equipment.
- Selling costs as a percentage of sales including marketing, advertising, entertainment, and travel expenses.
- Administration costs generally include all costs not directly tied to production.
While tedious, a line-by-line review of financial results for the last three to five years is a good starting point for making three-to-five-year projections. This will provide insight into annual sales, expenses, profit and taxes, yearly changes in sales and costs, as well as the ratio of costs to sales revenue. Management can use these ratios to predict the proportional contributory costs of many expense areas to the realization of projected sales. For example, if over the last five years advertising represented about 2% of sales, you could use this figure to estimate the cost of advertising needed to produce your sales projections.
Personal Time Matters
Success in business depends upon maintaining a balance between time spent in business and time spent satisfying personal needs. When you are establishing your goals, consider how your personal needs will impact your business and its long-term strategy.
Another key to success is remaining one step ahead of change. For example, if you were to lose one of your key business associates, what would happen to your business? Always ensure that you have a contingency plan and sufficient resources to navigate through the hard times.
Review both the short-term and long-term plans on a regular basis and adjust the expected outcomes to the new information. It is doubly important to review and update plans in the event of dramatic life changes or opportunities.
Let the Business Work for You
Proper planning is the best method of ensuring that you are getting the most out of your time and resources; ensure the business is working for you rather than you working for the business.