Even if it is not yet common practice, especially in smaller businesses, to prepare a business plan, you should definitely take action here. It is true that it always involves additional effort to prepare a well-founded plan. But the benefits that your company can achieve through planning usually clearly exceed the effort, as the following explanations and examples show.
1. Clarity about basic goals and intentions
The first purpose of business planning is to get clarity about your own goals and intentions for the coming year, for example, realistic sales figures and the funds required to realise sales or important investment projects. You should also formulate what you would like to achieve beyond this period in the next approx. three to five years, e.g. product developments, gaining new customers, opening up new markets, exporting, offering additional services or developing new unique selling points.
Example: You currently have 30 products in your range. The following is known from the past and the development in the current year: 22 articles can be sold well and yield high profits; 5 articles are new products for which it is not yet clear how the sales figures will develop; the remaining 3 articles are slow-sellers that are hardly sold and only generate low profits. You assume that the orders of magnitude will not shift significantly next year. Therefore, you formulate the goal to give priority to the successful products and to achieve an increase in sales volumes compared to the current year. In addition, new products are to be promoted until it is clear how they can be sold. On the other hand, no significant resources are to be planned for the slow sellers; they will only be manufactured if customers specifically ask for them.
Practical tip: Resources are always in short supply, whether it is staff, materials or finances. Therefore, you should always plan in such a way that especially profitable products are further promoted in a targeted manner. But new products must also be provided with sufficient resources until it is clear whether you can earn money with the product or not. After all, new developments in particular ensure that you will be able to generate sufficient sales and profits in the years to come.
2. Transparency in figures and data
Only in the second step should you back up the goals and assumptions with concrete planning figures. These should provide answers to these questions, among others:
- What are the expected sales volumes and prices?
- What costs will arise?
- What other payment-relevant transactions are there?
- What investment volume must be planned for?
- What funds (in euros) should be made available for advertising and new developments?
Liquidity planning and price calculation as well as the calculation of profit margins or contribution margins for products and services are also part of planning. In the operative area, the planned figures are broken down into months. With this “denomination”, special features, such as phases with higher or lower sales, can be better represented, and it is clearly recognisable when which sales revenues, costs and other payment-relevant transactions, e.g. repayments or tax arrears, are to be expected. The monthly view also has the advantage that comparisons of planned and actual figures can be made at short intervals during the year.
Example: You are a manufacturer of swimwear and plan a total turnover of € 7 million for the coming year. To get a better overview of the distribution of turnover and costs, break the figures down into months. This will immediately show that you achieve the highest turnover and costs in the months from February to June. Before and after that, turnover in particular drops drastically. With this knowledge, you can better plan your liquidity during the year.
Practical Tip: If possible, you should plan sales, material consumption and gross profits for each item individually. However, if there are dozens or hundreds of products, this is often too time-consuming. In this case, it is recommended to plan per product only for particularly profitable articles and to combine and plan all other articles in groups.
Your tax consultant can help you identify high-yield and low-yield products and services with the help of a simple ABC analysis.
3. Central business management control instrument
For you, corporate planning has the further advantage that, with planning and, if possible, monthly target/actual comparisons, you have a powerful business management control instrument that shows you on an ongoing basis how things are going in your business or how you are performing,
- how things are going in your business or
- whether and, above all, where there are significant deviations from the goals and plans.
Early detection of these deviations enables you to intervene in a targeted manner and at short notice and to prevent negative developments.
Example: You have prepared an annual plan with detailed turnover and cost figures. You have broken down the planned figures into months in order to have an exact overview of how the values are expected to develop during the year. In March, the actual turnover figures are more than 10 % below the planned and target values. A detailed analysis of all turnover figures shows that the slump is mainly due to one product. The investigation further reveals that three customers have cancelled or postponed their orders. In conversation with these customers, you learn that they consider the product too expensive.
You offer the customers new negotiations and manage to get them to renew their orders, albeit at a discount of about 8.5%. To compensate for the discount, advertising is to be intensified and focused more on particularly profitable products. An increase in the budget is not planned.
Practical tip: The distribution of the target figures over months has proven itself in practice. The sooner you recognise a deviation in the target figures, i.e. the goals, the sooner it is possible to achieve the originally planned goals through short-term intervention. Excel planning tools can provide valuable assistance in this regard.
4. Information and communication tool
Business planning is an important and central instrument for convincing interested third parties of the performance and goals of your own business. If you need a bank loan, you must in any case present a plan today, not only for the coming year, but also for the following three to five years.
But also larger companies (customers) who place orders and are interested in a longer-term cooperation increasingly insist that a supplier can prove what he is successful with and wants to be successful with in the future. Precise statements on how (with which measures) you want to achieve your goals (successes) should therefore also be included in a plan.
Example: You want to develop at least four new products in the coming year and expand your customer base by 5 %. In total, you want to increase your turnover by 8 % compared to this year. To achieve these goals, you plan to work with two new development labs. At the same time, the budgets for product development are to be increased by 20 % and an overall manager for the area is to be appointed. You want to expand the customer base by adding a sales representative and the Internet to your distribution channels. At the same time, advertising is to be improved. For this purpose, you plan to work with a new agency and also increase the advertising budget by 10 %. You compile goals, assumptions, measures and figures in a planning folder. This provides you with a meaningful information tool for internal and external addressees.
Practical tip: You should never plan only with “bare” figures. Every plan should be accompanied by documentation, which should include at least key words on how assumptions and plan values were arrived at. This makes it possible to reconstruct all figures in case of doubt and to prove them to third parties. At the same time, planning for the coming years can be improved because, for example, you no longer have to laboriously search for necessary contracts or providers of suitable studies.
All information and details in our articles and information have been compiled to the best of our knowledge. However, they are provided without liability. This information cannot replace individual advice in specific cases.
Link to the german version: https://thevisionworks.de/unternehmensplanung
