Courtesy / ACE
Tove Rasmussen, Partners Creating Growth
December 4, 2023
How to kickstart your planning and get ready for 2024
By Tove Rasmussen, Partners Creating Growth
Annual planning is crucial to setting priorities and evaluating a year's success. Too often, planning for the next year is overlooked while a business juggles many other competing priorities. Here is an overview of an efficient step-by-step process to ensure the planning will happen, together with an explanation of why each step is important.
If your 2024 plan has fallen between the cracks, focus on the budget. Ultimately, your budget reflects your company’s priorities. Managers will need to take time to develop action plans to achieve the revenue and cost figures for the year.
Start by forecasting sales for the next year; existing orders for the early months are a strong starting point. Then, gather information on anticipated orders for the rest of the year. Have sales representatives analyze the past year's sales by account and use their knowledge to forecast sales.
After creating the sales forecast, figure out expenses. In manufacturing businesses, the first priority is to calculate the cost of goods sold. In service businesses, cost of goods sold may be referred to as cost of revenue or cost of sales.
In either case, they are the specific costs of making the product or performing the service. For this, department heads need to examine this year’s numbers and research next year’s costs and cost-reduction programs to project next year’s costs.
Finally, address selling and administrative costs. These costs are indirect, meaning they are incurred whether you manufacture the product or perform the services. Your sales manager can predict these costs based on this year's selling expenses, accounting for any new hires or changes in travel costs. Your accountant, along with your general manager, can compile accurate numbers for administrative costs.
The first budget draft rarely shows the desired profit. Review it to determine where you need to increase sales and lower costs. Discuss what you can do to achieve these numbers. For example, requesting referrals can support an increase in sales.
Next year, start earlier to determine the strategy driving the budget. A strategic plan establishes priorities and how the company will meet the budget forecast. It is a time to gather essential information and ideas to craft the best approach.
A strategic plan is a living document. It is not something you leave in a drawer.
Many companies develop the strategic plan in the months before the budget. This often means the strategy isn’t current. It is better to hone the strategic plan continuously. Quarterly review works for most businesses — unless a key event happens mid-quarter. Then a company needs to respond quickly and shift its strategy.
To build a strategic plan, a company assesses its products' competitiveness and identifies opportunities for increased sales and profits. It answers questions like: Where is the company currently? Where does it aim to be?
The strategic plan guides the path to the desired destination. Communicating the plan throughout the company is essential; employee involvement is vital for buy-in and enthusiasm. Each employee should understand the key priorities relevant to their role. Tools like a balanced scorecard, which ties goals from the CEO to employees at the bottom of the organizational chart, can integrate these priorities into the performance evaluation system.
Preparing the strategic plan includes these essential tools:
- PESTEL analysis: Examining Political, Economic, Social, Technological, Environmental, and Legal trends in the business environment to identify opportunities and threats. The opportunities offer growth potential, and the company needs plans to protect itself from the threats.
- SWOT analysis: Evaluating Strengths, Weaknesses, Opportunities, and Threats to understand where the company excels and where it can improve.
- Competitive analysis: Assessing how the company compares to competitors in meeting the key needs and wants of the target market, including a price/value comparison.
- Strategic options: Utilizing consulting models like the Boston Consulting Group’s Growth Share Matrix or, my favorite, "The Art of Profitability," by Adrian Slywotzky, which offers over 20 ways to generate profit in business.
A regularly updated and communicated strategic plan ensures that both managers and employees stay informed about company priorities and how these priorities affect their roles. This helps keep the business running smoothly.
Plus, your company is prepared for the upcoming year.
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