Last week I provided some thoughts about an Annual Planning process. This is not greatly detailed, but should provide some thoughts about how to get started. The thing is that it may not be clear on why you should make such a plan. Yes, I talked about creating your future and controlling how you get there. In many cases, this does not provide enough Clarity on what you get out of it. Creating and maintaining an Annual Plan takes time and effort. Is it one of your better uses of your time?
At least part of the plan should have obvious value. That is the tracking of results and the ability to adjust the business based on the actual financial results. The problem with this that generally this is reactive to things that have already happened in the business. Although this is a necessary component, the return on it is not as great as those forward looking tools that one might want. You will be making changes after things have either gone more right or wrong than you want.
This is why the Leading Indicators are so important. I think these tools have two levels of value and I will deal with the most obvious one first. If these metrics are truly Leading Indicators than changes from plan mean that something is going to happen. It allows the business to change actions to change outcomes. There is nothing better than avoiding missing problems. The stress reduction is tremendous as the Business Owner gets to be in control of the outcomes.
But there is more to Leading Indicators than just what it means about future performance. The idea is that you should be able to understand what drives your business well enough to define the actions that will make your business prosper. The things that you will end up measuring are the things that matter. So not only are you controlling your business, you are defining how to make it perform well.
Let me give you an example of a classic Leading Indicator. This is not for every business, but works for many businesses. This is the percentage of business from New Customers. If you don’t get New Customers, then eventually your business will degrade. On the other hand, it is less expensive to get repeat business than it is to land New Customers. It is likely that a mix of new and repeat business is the right answer. However, if you just look at Revenue then the impact of your Marketing may not be clear.
So, it is time to create an Annual Plan. Do you want to know enough about your business to be able to know what drives it?
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