Business plans and budgets.
We are at the time of year when many businesses are starting to think about their business plans and their budgets.
There is often some confusion over the distinction between a business plan and a budget: a business plan sets out the objectives of the business and the actions that it needs to take to meet those objectives, whereas a budget is the portrayal of that plan in financial terms.
Developing your business plan.
Before developing your business plan you need to have a clear idea of your ultimate destination as a business, i.e. you need to have a vision of what you want the business to achieve for you: do you want to grow the business with the aim of selling it, or perhaps it is you aim to float it as a public company; or perhaps you want to run it as a family business, passing control over to your children. Whatever your vision, it needs to be written down.
With your vision in place, you need to know where your business is now. In an earlier article “Getting organised – Your Accounts“, I stressed the importance of keeping good accounting records and here is a good reason for doing so. Unless you know what the current position is it is not possible to plan how you can reach your ultimate destination.
So, you now know where you are and where you a heading. You can now determine the “gap” between the two and identify, in broad brush terms, what you need to achieve in the long term to fulfill your vision. This would be your long term business plan; it will not be detailed but just the skeleton structure on which you can hang the detail.
With your long term business plan in place, you can start concentrating on the short term, e.g. a period of a year is typical, although using a rolling quarterly plan can be effective and can have the advantage of causing you to review your plan regularly. With your long term goals in mind you need to set short term objectives which move the business towards those long term goals. You should not include anything in your plan that does not contribute to achieving your long term vision, to do so would be to dilute your efforts in achieving your goal and would act as a distraction. So, for example, if your long term goal is to increase your businesses turnover from £100,000 per annum to £1,000,000 per annum within five years, you will need to, on average, increase your turnover by 60% in each of the five years. You should limit your short term objectives to three or four, any more than this will, again, dilute your efforts and make it less likely that you achieve the objective. With the objectives set you now need to identify what actions that you need to take to meet them. In the above example these may include taking on a salesman, setting up an e-mail campaign, setting up an ad words campaign etc.. These actions need to be SMART, i.e. they need to be specific, measurable, achievable, reasonable and have time deadlines. So with your business plan documented, with the objectives and actions identified you will need to identify and cost the resources that you need to make it happen. This will form the basis of your budget.
Business plans once completed too often get put on the shelf and stay there until the next year. They should, though, be a working document that is constantly being reviewed and accessed. If they are not, then they are a waste of time. Your planning process should make sure that you plans are monitored at regular intervals to ensure that you keep moving in the right direction to achieve your goals.
2017 is rapidly coming to a close. Set aside some time now to ensure that 2018 is a year in which you start to take control and move to achieve your long term goals.