Saturday, December 27, 2008

7 Business Planning Fundamentals

October was an inflection point. Till a few months ago, India's economy was projected to show healthy growth (7.75%-8%)during 2008-2009. Corporate investment and funding plans were on track. Firms were implementing plans for aggressive growth withing India and overseas. The constraints were largely on the capacity/supply side, not on the resources or demand. The financial tremors in the US were expected to have little impact within India.

By end-November, the picture changed dramatically. After the financial shocks in October, it is clear that the world is facing an unparalleled crisis. Estimates for India's GDP growth have been repeatedly downgraded -- from 6.5% to 7% for 2008-2009 and from 5.5% to 6.5% for 2009-2010. Demand is slowing. Funds have become scarce. There is a substantial down-side risk in 2009-2010. An upturn in growth is expected only in 2010-2011.

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.
Many firms are wondering whether and how to prepare their business plans as the next fiscal year approaches. The solution lies in customizing the planning process to address the challenges the firm faces. Rather than ask whether business planning is relevant now, firms should determine how to make this process work best for them. The resulting plan can then form an indispensable enabler in tiding over the turbulent period that lies ahead.


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