A Close-Up Look at Planning
Profitability is affected by a variety of factors, not all of which are strictly financial. I call these factors the “Five Ps” of Business Success: Product, Pricing, People, Process, and Planning – each of which requires close examination. The foundation of the “Five Ps” system is rooted in planning. Let’s take a closer look.
Start with your “Why.” Whether you’re a start-up or have been in business for years, it’s worth taking a look at the core of your company – WHY you are in business. You should be able to articulate how your business relates to your personal values and mission, and what your business will contribute in terms of improving people’s lives, businesses, or the world. Achieving this clarity yields a foundational vision and mission on which to build the specifics of the plan.
Look out one year. Where are you now and where do you want to be a year from now? Consider what you need to accomplish in the next year to move your business forward and close the gap between your current situation and the vision you have for a year from now. Identify the steps you need to take and break them down quarterly.
Build your profit plan (not just a budget). Profit planning includes budgeting but also provides for the cash flow you need for operations. A rolling 12-month profit plan will help you track your progress and allows for adjustments as needed. Accurate reporting means that financial documents such as your Statement of Cash Flows, P&L, and Balance Sheet are kept current.
Have a strategic plan in place. A good strategic plan will help you prioritize and hone your attention on the important elements that can move your company forward and help you maintain positive cash flow. A comprehensive strategic plan will include a detailed one-year outlook which identifies initiatives and your desired outcomes including higher margins, a shorter sales cycle, new customers, and better quality products to name a few. Clarify the actions required for each quarter throughout the year to position yourself for success.
Define your processes in detail. Defining your processes will help you identify and anticipate obstacles and problems and take proactive steps rather than putting out fires later. Determine whether you have adequate resources in terms of staff, time, and money to accomplish your objectives. Communications should be a component of your strategic plan, both to staff and clients.
Determine whether you have sufficient cash flow to implement your plan. A thorough understanding of your financials is critical. Develop a cash flow forecast. If your forecast indicates a shortfall, an analysis of financials including your cash conversion cycle, working capital, receivables, debt/equity ratio, and statement of cash flow will help determine why you have a shortfall and can help identify areas in which you can make adjustments.
A plan helps you stay focused on the precious resources that are critical to your company’s success. It is a guidepost to your successful business, and something that helps keep everyone on the same page, with checks and balances along the way.
As a CFO with a CEO perspective, I’d welcome the opportunity to help you plan for the success of your company or help you solve the Five Ps of Profitability puzzle as it applies to your business. Schedule a complimentary discovery call with me.