Strong planning gives you budget flexibility
Maybe it is because ‘failing to plan is planning to fail’ is such a well-known saying that most people ignore the truth it contains. I have lost count of the articles I’ve written, clients I’ve coached and talks I’ve given on the subject of planning: but I will continue to beat the planning drum for as long as I can because it is the single most important thing a business owner can do to ensure their success.
What makes failing to plan an even bigger crime against business success these days is that technology has made it easier and more accurate than ever before. In fact, if you use technology well, it is practically effortless. There really are no excuses other than foolishness, laziness and blind stubbornness for failing to plan.
Whether it is financial planning, sales targets, recruitment, product development or even exiting the business, the only way to arrive is to have a clear vision of where you want to be. If you don’t have that vision, how are you going to know if you are headed in the right direction, if you have the infrastructure and skills you need, or when you have arrived?
But planning has one other massive daily benefit – flexibility.
Flexing the budget
The most significant practical advantage of having a plan in place is that you are better equipped to deal with the unexpected and can adapt to changes in circumstance or the environment. Your plan puts you in a position of strength, knowledge and security so that you can ‘flex your budget’ accordingly.
Life is full of surprises – but numbers are black and white, and numbers never lie. This means that you can react quickly, change course or adjust the targets and actions within your accurate plan. You can also reallocate funds and retain complete control of your cash flow, simply by having your plan in place. This flexibility is only possible when you know the facts, and it is an essential tool in reaching success.
What makes a good business plan?
In its simplest form, a business plan is displayed in numbers: sales, costs, profit, cash flow, etc. and is based on their value today and what you want them to look like at some future date in time. Using software like Xero, these numbers are available live, in real-time, and displayed in isolation or as a report against the daily, monthly or full target. Other add-ons and apps can give you intelligent predictions and accurate views on where the numbers are likely to go in the future and what you need to do to stay on track.
How do you set a target?
Business owners have various goals. Some might have aspirations to change their industry (or even the world), others love what they do and would do it regardless of return, and there are those who live for the idea of creating a working environment where others can thrive. For most business owners, I would argue, a large part of their motivation would have to be to generate income for their desired lifestyle and to support their family.
Let’s take the last category and a profit target as a generalist place to start. I always recommend starting backwards when planning your own remuneration as a business owner.
- Decide on the income you need to take out of the business each year (profit after tax)
- Calculate what that looks like before tax
- Add the overheads (fixed costs)
- Add the direct costs (materials, stock purchases, direct labour, etc.) and any other adjustments
- This information should give you your turnover target.
Once you have your budget and real-time reporting set up, you can start to make smart decisions based on real evidence. Think of these KPIs (key performance indicators) like the dashboard of your car – they tell you exactly what is going on under the bonnet without ever having to leave the driver’s seat.
If you’d like to know more about business planning, speak to your client manager to arrange a conversation.