Business Planning and Budgeting

How many times do you hear, “where is your business plan?  Do you wonder what does it matter to them?  Or will they understand it?  Or why should I write one I know what I am doing…….  Oh yeah and the “I can’t afford it!”  Well I hate to break it to you, but you can’t afford not to have one.

Business plans are meant to provide a tool that focuses thoughts and ideas and translates these thoughts and ideas into practical “stuff” throughout your business.  First and foremost it provides you with a roadmap as to the what, how, when and where necessary to determine your markets, needs, strategy and financial aspects of your business to increase the odds of success.  As we have talked about previously, a good business will quickly outgrow a good entrepreneur and get out-of-control.  Now this does not have to be an encyclopedia and the detail will depend on the business, the management team, the market and financial position.  However, it is critical for each business at conception to articulate the plans and then define the steps, timing and resources required to get there.  Optimally, this should be a living process that looks 3-5 years out with a monthly or at the least quarterly budget for the upcoming year and it reviewed, revised if needed and rolled out another year annually.  This should be a process that involves the whole team.

In conjunction with this, the key members of the business lift their collective eyes up to corporate goals and objectives.  This serves many purposes from a planning point of view but also provides significant team building benefits.  In business with long lead times the process is critical and more difficult as those lead times are subject to many factors that change for more reasons than we have time to go into for now.  Maybe at a later date we can delve into the fine points of planning.

Everyone has heard all the publicity about having a mission statement and getting the whole corporation or business to buy into the corporate mission etc.  These are great when you have staff’s that have missions as their business.  For most business, you may hire someone to drive the process and to be a 3^rd party asking the questions so you and your management team can focus on the answers.  Then from your discussions the plan would be created and you have the main aspect of it ready to move to the next step. However, first let’s just briefly mention some of the areas of importance. First and foremost what is your market?   Who are your customers going to be?  Describe or define your typical customer.  Who fits the profile in the market place?  Be specific and develop a list of companies with the contact information.  Now if you are having to multi-layer sell due to complexities of products, you may in fact have a strategy for each prospect outlined or at least noted.  Who is your competition?  How do the channel their products and/or services to the market?  What are their strengths and weaknesses?  How do you compare?  What about pricing?  Delivery of service or product, how?  Spend time on this as you, your management team and your sales team need to understand the market in detail.

Manufacturing companies will need to spend time working backwards for sales forecast to productions schedules. This will mean considering raw material availabilities in what locations and comparing deliverability with price and stocking needs to maintain a smooth flow through of product.  It also means maintenance has to be factored in, as well as security of resources, potential technological advances, allocation of resources for research and development and of course, personnel and cost of production.

Service companies have less to consider but it is also more elastic on the demand side created more uncertainty and adding the need to consider in depth explosive growth and potential valleys.  However, you can still work through the process of cost to deliver the service and it needs to include the corporate overhead allocated across all the services.

Now the process moves to personnel and those expenses that are not related to producing a good or to provide a service directly.  Items would be related to accounting, overall advertising, employee benefits and other similar costs.  These are usually straightforward and relatively easy to forecast.

So now you have defined you best ideas on what you sales/revenues will be this year and with less certainty further out to at least 3-5 years down the road.  You have worked through the costs and developed a 5 yr plan and rolled it back into the budget for next year.  Most people are glad to get to this point and never looked back.  However, I say slow down, get the key players together and each of you talk about the pluses and minuses of the plan as you see it.  It is the time for candid conversation but appropriate and focused on having a solid consensus of where the company is headed and why?  Now it is also time to roll it out to the company at large and then each management team leader should explain the plan to his personnel.  The team should get back together at least quarterly to review progress and see what if any events have influenced the company’s performance.

It takes some time but provides benefits on so many levels and we did not get into how much easier it is get funding from institutions or investors when you have a plan and have compared your performance to it.

Logistics, Simpler and Effective

For those in the service business with a clearly local flair, this may not be an issue.  Unless, of course, you plan to expand your business by opening up new markets.  Maybe your business lends itself to capitalizing on the advancements in technology and services provided by a efficient logistics company. Do you have or plan to have existing or potential clients send you goods or materials to analyze, repair, duplicate, or some other service and then you return it to them.  For others, it may entail full 40 foot container loads of goods.

In today’s marketplace, you really have to look at the size and weight of the shipments combined with frequency and whether international is a factor today or will be in the future.  So let’s begin with a discussion about shipping smaller lighter items.  This is a market once controlled by the US Postal Service until FEDEX used bar code technology and standard packaging sizes to develop a system to meet the more time sensitive needs of business.  They wanted both a system that would be user efficient but one that could handle very high volumes.  We could digress and discuss their philosophy but while several have tried to compete with them, it really has come down to two, FEDEX and UPS.  There are strengths and weakness of each but the basic principles apply.  Initially they just wanted to be your shipping company and now they want to be your logistics solution.  To compare the two we would need a specific examples and that would defeat the purpose of this to provide insight to a wide range of business about ways to enhance their business via a logistics solution.  TIP:  Both firms have relationships with organizations that have discount arrangements that can be significant and in excess of the annual cost of membership.  What kind of impact would it have if you could be delivering goods or services physically by 10 am the next day.  In major cities you only have to get it to certain locations by 8 PM. When a day or so is not a factor then you really can see competitive pricing as even the US Postal Service enters into it with one price boxes for anywhere in US.  Again you have to price compare and match it to your shipping objectives.

If you plan is for quick turnaround and you are dealing with items and services where a $10 difference in shipping is not significant or it is option at customer expense, it can change your markets and possibly even your services.  Technological advances in communication now make it easier, faster and more reliable to keep track of shipping status from a smart phone and on a close to real time basis.  With a little discussion and planning, you might be able to arrange all this to integrated right into your QuickBooks (or other accounting software) and/or Outlook thereby minimizing typing each label and address.  Think about how it works on eBay. 

So begin by asking yourself these questions:

• Does my business lend itself to capitalizing on this technology? Can I gain a competitive edge in my target market from better logistics?  Can it be additional revenue with various choices for the client?
• What are my margins? What are the costs?  How much are the fixed or more likely setup costs?  How much will it be on a per item basis to ship?  What is my break-even point if I were to add this logistically system?  Is it offset in whole or in part the time and effort savings of my employees?  They are good at what they do and mistakes are rare indeed.
• Where is my market?  Would this allow me to redefine my market? How does my competition handle it?

Many different options and factors enter into a decision of this type of decision. No one thing jumps out as the key. As we talked about last time, you need to evaluate in depth your people resource dedicated to logistics? What are your options and the associated costs and savings? Where do you plan to be in 3 years? Globally? Logistics and technology lead the way in that arena and provide tremendous cost savings. Consider that the marketplace is globalizing, competition will escalate, market boundaries will expand while costs are attacked making quality of service more of a challenge and an opportunity for separation in the marketplace. Savvy business planning ahead, constantly challenging themselves to be proactively efficient and staying up with the technology will have an upper hand in the battle.

There are a whole myriad of choices for that business shipping the smaller items.  This can apply on items up to a size that is say, lifted easily by your customer.  International markets have stabilized and logistics service has become readily available and affordable.  Once into the international market, you see a whole new slate of challenges issues that need to be addressed from who is best provider, import restrictions or duties, in-country competition, political status of the country and its stability. Additionally, once you move to larger items, say pallet loads or container loads, you need customized service and solutions that are geared toward that arena.  Generic solutions are less likely to be applicable when you are shipping larger and/or heavier items as with the size comes higher costs that ripple through all areas.  

So what do you look for?  Do you have experience in this market?  With these service providers, I mean freight forwarders?  Customs Brokers?  Transport Companies?  Are you aware of the new advanced reporting requirements for materials coming into US?  Are you shipping material that may be classified as hazardous?  Or it might be hazardous for air but not via ship?  Just a few of the questions that leap out at you when you talk about bigger items.