October 30, 2014

7 Business Planning Fundamentals

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Time flies. Thirteen months ago I posted Economic Dark Clouds here in September of 2007. Back then I said “the economic news is clustering now,” but my point was essentially sticking to the fundamentals …

With some notable exceptions, your business moves up and down far more because of very-micro specifics of what you and your team and your customers do. Your specific marketing programs, your new product release, your email campaign, your pay-per-click keyword decisions, your product development, your word of mouth it’s what you do with your business that moves it up and down, not what happens in the headlines.

… but at that point I really had no idea how bad this whole thing was going to get. And that’s with apologies to Anita’s post on small business optimism yesterday.

Today, 13 months later, this one now looks to me like the worst of my lifetime.  I’m 60 years old, and I’ve seen some recessions. I was looking for my first real job during the recession of 1971. I started my first business during the recession of the early 1980s. I moved that company from California to Oregon during the recession of 1992. I laid off five people in a single day during the recession of 2001. This looks worse.

Fine. So what do we do about it? Specifically, what do we as business owners, managers, and entrepreneurs, do about it? I see this question and good and bad answers everywhere, so for this post I’ll stick to my expertise, which is business planning.

Let’s review how we go back to the fundamentals of business planning. What exactly are the fundamentals?

  1. It’s the planning, not just the plan. That’s critical and we all see it now as sudden unexpected changes — the black swan — blow our plans up. No worry, business plans are always wrong, so it’s always been the planning process that makes them worthwhile. Planning means plan and review, revise, and correct, and review and revise and correct again. Watch how the assumptions change. This is absolutely fundamental to planning.
  2. Shorten the cycle. You’re using planning to steer your business now, and the road is curvy and bumpy and unpredictable, so you pay closer attention and concentrate more carefully. Review your numbers frequently. Watch for changes, surprises, and the unexpected. It’s about early warnings. Watch the short-term closely. Use your planning as an early warning system.
  3. Sharpen the focus. Narrow it down. Make sure you’re close to your best customers. Sharpen the marketing message, and review where it’s going and how. Avoid wasted resources.
  4. Watch the cash flow. As the kids would say, “no duh.” But even if it’s obvious, I can’t leave it out of the fundamentals. Please remember that profits aren’t cash, and watch for changes in the cash cycle, like your business customers waiting longer to pay their bills. A business-to-business company needs extra financing worth a month of sales for every 30 days longer that customers hold off their payments.
  5. Watch the metrics. Remember, you’re looking for early warning systems. Obviously sales, costs, and expenses are metrics, but measure wherever you can, and watch for changes. Phone calls in and out? Time per call? Presentations? Inquiries? Metrics work for early warning.
  6. Your business plan is always wrong, but vital. See point number 1.
  7. Your business plan is never done. See point number 1.

My conclusion? Now, as 13 months ago. This is from that economic dark clouds post (sorry to quote myself, but hey, at least I’m consistent), but I think it holds up now more than ever. Stick to fundamentals, and get back to work:

Thoughtful economic analysis is readily available, fascinating, and scary. I don’t know about you, but for me some measure of future fear is a good thing. As president of a small company, being fearful is part of my job. Then I finish my coffee, go to my email, and get back to work.

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Tim Berry, Entrepreneur and Founder of Palo Alto Software, bplans.com and Borland International About the Author: Tim Berry is president and founder of Palo Alto Software, founder of bplans.com, and co-founder of Borland International. He is also the author of books and software on business planning including Business Plan Pro and The Plan-as-You-Go Business Plan; and a Stanford MBA. His blog hub is at timberry.com.

11 Comments ▼

Tim Berry


Tim Berry Tim Berry is Founder and Chairman of Palo Alto Software, Founder of Bplans, Co-Founder of Borland International, Stanford MBA, and co-founder of Have Presence. He is the author of several books and thousands of articles on business planning, small business, social media and startup business.

11 Reactions

  1. I’m an owner of a IT services company that’s now grown to 12 people, which means I have a need for HR. The only problem is that I can’t afford an in-house person right now. I came across a Website http://spinsurance.com/ and it looks like they offer HR, payroll and worker’s comp through an online suite. I haven’t seen any reviews but was wondering if anyone out there has heard of said company or can reccomend something like it. Thanks.

    Chad W.

    San Diego, CA

  2. Hi Tim, I too got my first job during this economic recession stage but I am hopeful still that we will continue to thrive to get the ‘fire burning’ and not just trying to survive as controlled by our fears. And yes, it’s time to get back to basics. The advanced could have not serve its purpose with the existence of the basics. :)

  3. I love Small Business Trends. I’ve been subscribed for some time now and it never fails to inspire me.
    Although I’m a Brit(Welsh) I find the content relevant and valuable even though I’ve retired from my accountancy business.
    Even though I thought I knew everything there is to know about business planning Tim’s thoughts and advice breaks new ground for me.
    I too am 60 years old but having watched impotently as my son’s manufactuing business collapsed earlier this year due to the withdrawal of credit (not from banks but suppliers) I feel old and incapable of entering into the battlefield.
    I remember Tim’s warnings, believe me, but the credit crunch which has crept up on us over the past two years was impossible to avoid.
    The Plan as you Go Business Plan requires a deep commitment by all people in an organisation but it is so difficult to inspire colleagues to think in a new way.
    Trying to convince people that a quadrupliing of input materials combined with a reducing cash credit limit was a recipe for disaster was the hardest thing to do.
    Competitors who may have say, a six month respite due to imported stockholdings
    exploit your weaknesses with no regard to the looming impact on their own price requirements. By then it is to late.
    I was on holiday when the crisis erupted and guess who I was reading? “The Age of Turbulence” by Alan Greenspan. I was deeply impressed by his undoubted intelligence. His essential value to the financial sector was his insistence on detail, the basic working of the economy right down to the elements which drives production and trade.
    Despite this expertise Greenspan admitted an ignorance of why the US boom did not drive up interest rates and consumer prices, untill he finally realised it was the intervention of Far Eastern market penetration.
    As late as July this year Greenspan added a chapter to update his thoughts and give a prediction for 2030.
    However, he did not even come close to predicting what was looming so close.
    You did Tim, so keep thinking and writing!

  4. Mary Grace, my initial impression is pretty good by looking at their website. I have not used them but I’m sure if you search for the business name and then reviews you’ll find people that may have. That’s what I usually do when I try to find out more about a company and it works. Best of luck.

  5. Keeping close watch on all aspects of your business now is so important. It’s best to be able to recognize a problem early before it gets too out of hand and unfixable.

  6. Hi Tim, Sticking close to your numbers and having metrics to watch is key in any economic environment, and especially when times are rough. Great points!

    I don’t want to sound pollyannish, but we small biz people will get through the tough times. It may not be pretty — but taking the right steps like you’re outlined is what arms us to get through tough times and stay optimistic enough to believe that ultimately we’ll go on to better days.

    Antia

  7. Thanks Kenneth, but I can’t claim I predicted anything really worth while because lots of people saw clouds on the horizon, and so did I, but some kind of a downturn was pretty obvious. I had no idea of the magnitude of what actually came. To me it’s a great example of the black swam, as in it seems predictable after the fact, but wasn’t. My reference to that earlier post was more because I think the ultimate idea, the distance between the macroeconomics and the small business specific situation, still holds.

    And Anita, thanks, and I don’t think your view is pollyannish, I think it’s middle ground. The sky isn’t really falling. It just seems like it.

    Tim

  8. Tim Berry,

    I agree that should check your metrics. It is funny that this word is coming from the European way of measuring! ;) When will America start using the metric system in all areas?

    It is important to look at your cash flow and see what’s coming in and what’s going out. One thing is to start negotiating with your suppliers and try to get better terms of payment and at the same time try to get paid by your customers in a quicker way. The business plan is an ongoing process, updated on a regular basis.

    I have to do the same thing as you Tim and quote myself. Here is from my post, Time To Bring Back The Smiley Face To America, on Open Forum by American Express:

    “It’s the economy, stupid.” Sooner or later, you have to take care of the “quadruple” deficit (budget, savings, trade, and leadership). Today’s situation is caused by a long period of I.O.U mentality and therefore pushing the deficit problems ahead, instead of paying back as soon as possible. It is getting really messy when the Uncle Sam thinks it is OK to borrow 22 cents of every dollar that is spent. I wonder if you have watched the movie, I.O.U.S.A. – One Nation. Under Stress. In Debt? (October 14, 2008)

    If you are interested to read the whole piece, click on “Martin Lindeskog” Says: I will write a new post in the near future. I look forward to your feedback! :)

  9. “Your business plan is always wrong.” Yes to a point this is true but there is a lot in the business plan that is correct.

  10. #1 is well said. A lot of people do not understand the importance of business planning.

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