Whether you’ve just started your business, or your business has been operational for some time, it is essential to plan your business activities and then manage and measure your business performance against your business plan.
There are different types of business plans. A business plan is what you are planning to do and how you are going to do it and will include your business mission, vision and values, your business goals, your market, your customers, your products and or services, your business marketing and operational plan and an overview of your business financial plan.
A budget is the complete financial planning for your business, it is a planned action and outcome for the future and includes the Profit and Loss (P&L) statement, the balance sheet, the cash flow statement, your CAPEX planning, any changes you want to make to the business, your key performance indicators, as well as unit costs, volumes, selling price, supply chain, etc. and is typically for a year, three years or five years. A forecast is over a shorter period and is a predication of the future and could be a week, a month or a quarter. All these processes drive critical thought, results measurement and analysis of the present and past and a review of the overall business performance in relation to your business plan.
Many business owners and business leaders spend so much time working on the business that they forget to spend time in the business. Successful businesses take the time to review their plans, analyse and manage their budgets and regularly monitor the outcome of their operational and financial performance. Strategic and structured planning can make or break your business as it enables you to concentrate your efforts and resources where it is needed to improve profits, reduce costs, manage working capital and cash flow and ultimately increasing the returns on investment.
Business Plan Cycles
Business plans and budgets are used to review and monitor your actual performance against your planned targets. These reviews are typical performed after each month-end, as well as comparing your results with the previous period, both for the month and year-to-date. You could also review your performance weekly and then adjust your forecast inline with your actual results.
Reviewing and measuring your results regularly will assist in highlighting your opportunities and treats, analysing your successes and failures during previous periods, highlight resources challenges, whilst revisiting your key objectives for the remainder of the period will assist in making changes where needed to achieve your business objectives.
Creating a Budget
Creating, monitoring and managing your budget is the key to your business success, as it assists you in planning and allocating your resources where it is most critical and needed for your business to remain sustainable, profitable and successful.
It is best practise to apply a zero-based budget approach, thus start from scratch and not simply adding for example 10% to each income and expense line. Be conservative in your approach, ensure your budgets and plans are realistic, because overestimating your performance will result in future problems.
Use historical data as a guide, plan your sales and growth by revisiting your selling prices, your customers, your products, your market and your sales resources.
Know your costs: Sales costs such as marketing and advertising. Fixed costs such as rent, salaries and wages and other operational costs. Variable costs such as raw material costs (contact your suppliers for their cost projections, particular for imported raw materials) and overtime. Plan your capital needs by determining if you are going to need any new equipment, computers, software, machinery or new vehicles, either with a direct cash layout or financing the new assets. Consideration to be given to the projected exchange rates over the budget period in determining your raw material cost and selling prices and to budget for any finance (interest) costs on your loans, overdraft facilities and or financing your business assets.
Benefits of business planning
There are several benefits in drawing up business plans, budgets and forecasts, which includes: Monitoring your business performance; improve your decision making, making timeously changes when required, meeting your business objectives, highlighting cash flow constrains, improve staff planning, training and motivation, allocating appropriate resources to projects and ultimately, planning for the future.
Comparing the budget against actual results and last year, period over period allows for benchmarking your business performance over the reviewed periods, as well as comparing your results with other industries in the same sector. In comparing your actual sales against your budget sales will highlight any shortfalls for instance, lower sales volumes, underperforming or maturing products, flat or declining markets, the timing of your income and cash as well as your inventory turns/ flows against your projections.
One of the major business planning elements is understanding your key drivers that has the biggest impact on your business, which is your sales, costs and working capital. Working capital refers to your inventory, debtors and creditors and directly impacts your cash flow resources. It is vital to focus on these elements, together with your overall business planning, vision and goals. Monitoring your business planning and budgets regularly and carefully will assist to ensure business sustainability and will help you to eliminate surprises timeously which in turn will help you to run your business as appose to your business running you.
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