Know Your Numbers: Annual Planning

Last week, I covered the 10% Formula and this week is my final post in this thread. I said in that last post that you need to look at your numbers proactively. This means that you don’t react to what they are saying after the fact. You look at them and help create your future. The best way to start this is with an Annual Plan.

So, what does an Annual Plan consist of? Simply it consists of a Financial Plan and a number of initiatives that will happen in the upcoming year. The Financial Plan breaks down into a set of people and capabilities for each part of the company. The initiatives are actions that are taken to change the company from where it is today to where it is at the end of the following year. As I have said, this is all about alignment and this is the place where that piece of rubber meets the road.

How to start? Well, a good place is the current results for the year. It should be possible to project the rest of the year and end up at an estimated Profit and Loss (P&L) statement. The next thing is to update this P&L for next year. Price increases for standard expense items, estimated raises, and cost of products increases should all be included. Then a Revenue Plan will be created based on the selling of the Products and Services that will exist by the Year end. From that you will have next years P&L. There will be tweaks around it and it probably takes two passes to get this correct. I have called this as a “Present View of the Future” or what next year will look like assuming you make no changes.

The thing is that you may be quite unhappy with the results as they are about to happen. The good news is that you can do something about it. This is where initiatives come in. They are changes to your business that you make. They should have an impact on your bottom line that is traceable. So an Annual Plan would on consider these and add the results of them to your P&L. That final result may get you what you need for the future of your business. The challenge is to create a model that you can measure to understand the performance of these initiatives.

One method is called a Balanced Scorecard. It consists of a number of Financial and non-Financial measures that can be done monthly or quarterly. You need to have performance thresholds for each measurement period. This allows you to know whether the metric is doing poorly, reasonably or well. If things are going poorly, you can then take action to improve your execution. It is important that these initiatives are aligned with where you want your business to go. On top of that, you want to keep your total number of measurements under 10. Three of them are going to be Revenue, Gross Margin, and Net Margin. The rest should represent a set of numbers that should happen if your initiatives are doing what you want them to do.

So, have an Annual Plan. Create Some Initiatives. Measure your Results. Take action as needed!

Jim Sackman
Focal Point Business Coaching
Business Coaching, Executive Training, Sales Training, Marketing
Change Your Business – Change Your Life!

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