By Phillip Chichoni
IT is that time of the year again when some business people look back on the past year with joy and satisfaction.
>Many others, however, do so with gloom and despair, wondering what happened and why they are in no better position than they were in January.
Then they look forward to the next year worrying whether their business will survive another year.
An interesting quote by one of my favourite columnists, Harvey Mackay, says: “Failures do not plan to fail. They fail to plan.”
As small or medium sized business owners, we can all make 2008 the most successful possible.
Business people who started the year with a solid business plan know exactly where they stand right now.
They know what they set out to achieve, and how much progress they have made towards achieving their goals.
If they failed to attain their goals, they know the causes and can plan to overcome these hurdles in 2008. By evaluating their performance monthly and weekly throughout the year, they were able, at any given time, to say where they stood on the path to their goal.
Many people choose a goal at the beginning of each year, but fail to monitor their progress towards reaching it. It is at this time of the year that they are surprised to find out how far they are from their target. This is because they have no benchmarks to measure against and just run around without knowing if they are getting anywhere.
Why you need a plan
A business plan will serve as a guide for your company. It will keep you on track with the performance of your business. It is a means by which you regularly analyse what is happening with your product or service, and it will help you plan for and implement changes that will make your business more profitable.
Business plans are essential for both new and existing ventures. Start-ups need the plan in order to describe how they are going to implement their new projects. The rigorous process of business planning requires a complete understanding of your industry, the market and the macro environment. It also requires you to define assumptions, do market research as well as make forecasts of your market share, sales and income in the form of financial projections. It is during the planning process that you are able to discover whether or not the idea is profitable and worth pursuing.
Documenting the plan helps ensure commitment and is a necessity if you need to seek outside financing.
An existing business needs planning in order to set goals for the coming period and put in place mechanisms for evaluating performance and making changes where necessary.
Setting and resetting goals
One of the key aspects of planning is setting goals. Goals provide a sense of direction and purpose. They enable you to focus your actions on those activities that will help you reach your goal.
To help you set goal, here is a step by step approach.
Look back to the beginning of 2007 and write down at least three goals you have accomplished, personal or professional. If you are one of the minority who set and actually achieved at least three worthwhile goals, then congratulations!
Write down three goals you want to accomplish by the end of 2008. Write down quickly what comes to your mind. Of course you can always make changes later;
Write down three business or professional goals you would like to accomplish over the next three years.
Goal setting sets the background for your planning. Once you have clear and measurable goals, you can start working on a plan for implementing them. Major goals can be broken down into stages, with a deadline for each stage. The difference between a dream and a goal is that a dream is just a dream, while a goal is a dream with a plan and a deadline.
There are a number of business goals that one can set to achieve. One simple method is what I call the bottom up approach. In other words, you start with the bottom line, the net result you wish achieve, and build upon it. Let’s assume you want to earn a net profit of $1 million dollars from your business, assuming a stable currency. This simple approach works as follows:
Set the bottom line that is a net profit of $1 million for the year ending 31 December 2008.
If your expenses for the year amount to $9 million, then you need a gross profit of $10 million for the year.
Say your sales margin is 20%. You will need sales of $50 million in order to achieve the gross profit of $10 million.
If your selling price is $5 000 per unit, you will have to sell 10 000 units in order to reach your revenue target of $50 million for the year.
From the above, you can work out how many units you need to sell each month and each week of the year, adjusted depending on the seasonality of your product. With this information, you can plan your marketing and sales activities for each day.
You are able to track your progress throughout the year by comparing actual performance against the set targets. Variances can be corrected by taking necessary action whenever necessary, such as increasing advertising or promotion when sales are below target.
With such a plan in place, together with evaluation and control measures, your business plan will succeed.
Chichoni is a business planning consultant who works with small and medium sized entrepreneurs. Send views and comments to firstname.lastname@example.org