Last week we discussed performance review as the first component of end-of-year activities that the entrepreneur should conduct, which we said, is about ‘looking backwards’. Today, we will take up annual business planning, as the second component, which we said, is about ‘looking ahead’.
In the first instance, every business must have a reasonably ‘long’ term business plan, which looks ahead into the next few years. But then, we really cannot be ‘perfect’ in ‘seeing’ into the distant future. Annual business plans are the iterations that we need to get as close as we can get to that ‘perfection’ in a short frame of only one year.
What is annual business planning? This is the process of building a one-year business plan that is aimed at achieving short-term objectives which fit into the overall long-term goals and vision of the entrepreneur. A one-year business plan brings out and synchronises discrete objectives for the year, how they are to be achieved and by which staff and units. It also identifies resources that may need to be deployed as well as how and when they are to be provided.
Annual business planning goes beyond financial budgets that tend to, unwittingly, be the only preoccupation of many entrepreneurs prior to the beginning of a new year financial year. Rather, it is also a series of milestones as well as tasks that the company should carry out and achieved within the upcoming year.
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A brilliant annual plan provides a clear-eyed platform for the achievement of desired objectives. A good business plan gives employees the clarity of purpose and sense of direction in what to do while giving investors a benchmark against which to measure performance. It makes it possible to enhance operational efficiency. Furthermore, an annual business plan adjusts long-term plans in such a way as to help seize emerging opportunities and also address challenges that were not anticipated.
The process of developing annual business plans: First, the timing of the planning process is important. As we mentioned earlier, plans should be developed prior to the start of the new year. This allows for the people and units to be clear of the expectations on them as well as for the organisation to provide any required resources ahead of when they may be required. I advise that one month to the start of the new year is about the minimum time that is required for plans to be concluded. The larger the business the more should this gap be. Developing a business plan when the year has already commenced is derelict and devil-may-care!
The ‘right’ people should be involved in developing an annual business plan. Some of the information required will need to be thrown up from the bottom whilst some other will be thrown in the reverse. The planning engagement should be robust, practical, and fact-based. Where assumptions are made, they should be clearly understood as such. At the end of the process, details agreed should be documented and communicated across the organisation on a need-to-know basis. One interesting thing about annual business planning is that some targets may be reviewed upwards whilst others may be reviewed downwards. In either case, what is important is to have the right basis for whatever decision is being taken.
The components of annual business plans: As with a performance review, an annual business planning process will be looking at the internal functions and the external environment within which the business operates. Some schools of thought suggest that annual plans should include a review of the mission and vision of the business. I don’t subscribe to this. I believe, instead, that annual plans are supposed to help guide the organisation to remain on the decided mission towards achieving the desired vision. If the mission and vision have to be changed, then a call for strategic re-planning becomes imperative and imminent. Beyond that, the typical components of an annual plan should include the following:
- What have you learnt from the past year’s performance review? We have mentioned last week that the knowledge you gained from the past year’s performance review should provide some insight that can be used in the upcoming year’s review. What have been the failures, and what can be done about them? What have been the achievements, and how can they be leveraged upon? Etc.
- What should be your new year’s objectives? Depending on what your mission and vision are, as well as your performance the previous year along with the resources you have or may be able to raise, you will need to set objectives that are both realistic and a stretch. As they say, goals and objectives should be ‘SMART’ as in ‘Specific’, ‘Measurable’, ‘Attainable’, ‘Relevant’ and ‘Time-bound’.
- What will be your market and supply chain objectives? Businesses are fundamentally about markets. So, an annual plan should be clear on what is to be achieved in the market in terms of volume, market share, profit margins, etc. Whatever you decide as your market objectives will come to bear on your production and overall supply chain plans. From where do you source your raw materials, and at what costs? What should be your production efficiencies? How do you sell and deliver to the market? Etc.
- What are your human resource plans? The most important resource that you need to achieve your corporate objectives is your human capital! Consequently, you will need to have a three-pronged sub-plan for your people. First is to assess their individual skills and competencies; Second is to have a continuous development program for them; and third is to have specific targets for each individual and their units as to what is expected of them in the coming year.
- Your financial targets and budget: Your annual budget is just one component, even if an ultimate measure, of your annual business plan. Your financial targets, drawn from market objectives, production plans, etc. should culminate into an annual budget. Your annual business budget is a document that should reveal your resource management plans, new/ongoing capital investments, sales forecasts, overhead expenses, cash flow projections, and therefore any financing needs, expected operational profitability, assets and liabilities positions, etc. Your annual budget will serve as a benchmarking document against which actual results will be measured.
If you have not done your performance review for the past eleven months and have not developed your plan for 2023, you are not entitled to any end of your holidays! Return to the office with your key staff and get them done before twelve midnight on December 31, 2022. You need to be clear-eyed and clear-headed about what you will be doing in 2023 if you are to stand any good chances of success.
End of year activities should be conducted timely and thoroughly. They help you know where you are, where you want to get to and how to get there. Next week we will take up Coaching Your Staff.
