01 April 2021 10:29:24

Why you must conduct business planning during uncertain times

Although this is a generalisation, almost all small businesses – and the majority of medium-size businesses – don’t have a strategic plan, or any plan for that matter. Some have a financial plan ‘because the bank needed one’. But this has long since been filed in the drawer and never reviewed.

In uncertain times, many consider plans as inconsequential and their time should be put to dealing with the here and now. So, if most small and medium-size businesses don’t have plans, why should you have a plan for your business?

Let me ask this question: why do most large businesses have plans? Large businesses have plans, not just to keep bankers and investors happy, but they also have them as tools to manage their businesses better. They regard plans as a very powerful business tool. That’s why all businesses should have them – to help them manage their business better.

Even the Australian Government’s Business website outlines planning as the first step in starting a new business. When you register for an Australian Business Number (ABN), the Australian Taxation Office (ATO) may call you and ask if you have a plan. They may even ask for a business plan if you have losses over consecutive years. As Benjamin Franklin said, "If you fail to plan, you are planning to fail."

Advantages of having a business plan

Plans help you stay organised and co-ordinate your efforts. Developing plans is not easy. For most small and medium-size business owners, their preference is to look at the detail and not the big picture.

However, I think the main reason they don’t develop and follow a plan is because they’re afraid of failure. ‘What would happen if I have a big, hairy, audacious goal and didn’t reach it? What would people think?’

A goal or plan will set in place where your business is heading. When I’m working with business owners, I first assure them that the goals of their business are their goals, and no-one else cares whether they achieve their goals. I’ve never had a client ask me what my goals are, and I don’t expect I ever will – they just don’t care about my goals.

Second, I tell them that not setting a goal or plan is like turning up at the airport without a ticket and not knowing their destination. I ask them, ‘What will you do?’ and ‘How will you do it?’ and ‘With whom?’ and ‘What do you want out of the trip?’

Third, I assure them that they are more likely to get close to their goal if they first set one. Remember when you were saving up for a car or house deposit? I bet you had regular savings goals and stuck to a budget. By knowing how much you needed to put away each week or month, you were more likely to achieve your goal than if you had no goal or plan at all.

Plans are notoriously inaccurate

A plan is out of date almost as soon as it is completed because things happen along the way that you can’t plan for. They can be good things, such as a new client coming on board or implementing a more efficient system that saves you time and money. Or they can be bad, say, like a global pandemic, bushfire, drought or all three. Most plans don’t build in slack to account for these unknowns. However, the inaccuracy in plans does not make them worthless; in fact, it is the process of planning that is most useful.

Planning helps you understand the risks, dependencies and resourcing of your business. As former US president Dwight D Eisenhower said, ‘No battle was ever won according to plan, but no battle was won without one… plans are useless, but planning is indispensable.’

There are many types of plans: operational, marketing, human resources, business continuity and technology. But my top three are the strategic, financial, cash flow plans.

Planning with strategy in mind

A strategic plan is the foundation or primary plan for your business. It is your road map for the medium-term – approximately the next three to five years – and establishes where the business is headed. It sets out the organisational vision, mission and values, and focuses the energy, time and resources of the business in the same direction.

It points to specific results that are to be achieved and establishes a course of action for achieving them. A strategic plan also helps the various work units within a business align themselves with common goals.

Without a strategic plan, a business will wander aimlessly, and priorities will change constantly as employees and business owners become confused about the purpose of their jobs. Businesses that perform at the highest levels have a formalised strategic plan in place and implement it well. Once you have developed your strategic plan, the key to making it work is to commit to seeing it through and implementing it across all areas of the business.

Your strategic plan is more than a piece of paper. It is not a tick-the-box exercise – it has to be much more than that. Executing your strategic plan is as important, if not more important, than developing your strategy. It moves it from a document that sits on a shelf getting dusty to actions that drive organisational change and growth.

Implementation of your plan addresses the who, where, when and how, whereas the strategy addresses the what and why questions.

My experience has shown me that you need to review and track the goals and objectives you have set for your business, otherwise your plan will be regarded as a one-off exercise rather than something that is ongoing.

The plan is not to be only discussed annually at a ‘weekend retreat’, it also needs to be communicated regularly and widely. Unless everyone is told about it, how can you expect them to understand it and to contribute to it? Lack of ownership of the plan is a big risk. If people do not take responsibility for the plan, it will continue to be business as usual.

Another risk to the successful implementation of your plan is that it is regarded as the ‘oh my God’ plan – it’s too large, too grand and the goals and actions required to implement it are too numerous, so it’s difficult to prioritise which steps to take first. By not considering the plan’s implementation it is seen as an end in itself, and how it is going to be implemented is not discussed during the planning process.

Avoid the strategic planning pitfalls

One of the challenges with implementing your strategic plan is that it can be hard to track progress. Sure, you can ask for progress reports, but often it’s tempting just to measure what’s easy rather than what is important. When this happens, momentum stalls and everyone gets frustrated.

To get around this, make sure you ask people in your organisation to be accountable. With accountability comes empowerment. If they are going to be made responsible for helping to successfully implement the plan, then you need to give them authority and the tools necessary to impact the relevant measures.

Introduce a financial plan or budget

Your financial plan takes a snapshot of your business at one point in time. It is based on current information (available at the time of drafting the plan) and takes into account future assumptions. There are two keys to a good financial plan.

First, the assumptions used in the financial plan must be valid and justifiable. If you can’t justify every figure in your plan, the credibility is severely compromised, and you also probably have not put enough robust thought and questioning into the development of the plan. Part of the reason you put plans together is not just to arrive at the end result, but rather the process of questioning and validating while you compile the financial plan gives you a greater understanding of what’s going on in the business.

Second, you need to remember that the financial plan is only made at a point in time. You should not be constantly changing the budget throughout the period of the budget. If things change, and they always do, then use another form of report, which larger businesses often use, that is a rolling forecast.

Unless you really like number-crunching or have dedicated accounting staff to do this for you, a rolling forecast might be a step too far. Again, a large part of the value of the financial plan is actually the process of putting the plan together.

Why cash is king

I find the cash flow forecast the most useful report for the day-to-day management of a business. Unlike most accounting reports that review what has occurred in the past or the ‘sins of the profit’ such as the profit and loss statement or balance sheet, the cash flow forecast is a proactive tool.

I had a client who took three months to actually put the effort into compiling a cash flow forecast for their business. They wanted to bury their head in the sand (it would have taken me an hour!). However, once they had one, it not only helped them manage their cash flow, but it also gave them much better insights into the business. It showed them the size of the pipeline of sales and debtor receipts they needed to generate each week to cover the cash outflows, and it showed up which creditor payments they needed to try to push out and which debtors they needed to chase.

With their cash flow statement in place, this client had a terrible shock. They realised that they did not have a plan, or the ability, to generate the required cash to cover their outgoings. They needed to make some hard decisions regarding what they were spending cash on, how they were managing their working capital and how they could increase and diversify sales income.

TIP: Only include items in your cash flow forecast that you are certain of. For instance, don’t put projected sales into it – only put the sales you have actually made. When you only enter the cash items that you are certain of, then you will see the cash flow gap and you can start getting busy working out how you can close that gap.

Lastly, planning will reduce anxiety and give you clarity. The information garnished through the planning process will enable and empower you to make decisions – no matter how uncertain the times are.

Stephen Barnes is a business turnaround and recovery specialist, Board advisor and the principal of management consultancy Byronvale Advisors. He has over 25 years advising clients from new business start-ups to publicly listed companies and across a wide array of industries.