Business planning is usually done when a business plan is needed for funding purposes or as a guide to running and growing a business (as a start-up or for the next time frame). Many crucial characteristics of a company must be considered and balanced in this planning process. Various options, issues, and risks related to these features are considered.
Entrepreneurs often assume that one variable has a linear relationship to another (e.g. $x spend on marketing will generate $y sales revenue). But business is seldom that simple. Many multidirectional relationships tend to occur between the various features. For example, sales would also be affected by product quality, price, etc. The sale, in turn, will influence future expansions. To accommodate this phenomenon, an integrative corporate planning process is required.
Crucial questions in corporate planning
Every business is different, and the critical issues in one may not necessarily be in another. However, it is important that the business planners ensure that they analyze and plan all the relevant characteristics for their specific business. This would normally include the issues highlighted below.
- The business – It is important to ensure that the opportunity, the business concept, its products, services and strategy, and the industry in which it operates are sound.
- Marketing – The marketing strategy must be considered. This includes aspects such as pricing and advertising.
- market research – This is an important topic that is often neglected. It is important to know and understand the customers, the market size and trends, and the competition.
- Development – All issues related to the development of new products, services, markets and facilities must be planned.
- Operation – All aspects related to the what, where and how of operations must be considered.
- The team – The management team must meet the needs of a company. It would be preferable to identify what skills/jobs are needed and then associate people with them. Where there is a lack of skilled workers, training programs can be carried out and new employees hired. The entire organizational chart and the composition of the board, management teams, etc. must be planned.
- finance – Finance is the ultimate measure of a company’s success, but it cannot stand alone. Important financial issues typically include investment, financing, and dividend decisions and policies. It is also crucial to plan for revenue (sales), gross margin and cost control (of expenses). The relationships between these subjects (financial ratios) must be further planned to determine whether the business will be profitable, liquid and solvent. For example, return on investment (ROI) and sustainable business growth would be specific aspects to consider.
- risk management – The various risks that arise must be identified, analyzed and taken into account. Fatal mistakes must be eliminated. Operational and financial risks can often be hedged. This would incur certain costs and strategies such as: B. Manufacturing in different countries and buying and selling futures and options in different currencies.
The complexity of detailed corporate planning
A brief overview of the brief summary of the key points to consider provides an insight into the complexities involved in business planning. If we only look at the financial aspects, we will see that price has an impact on sales (sales). Usually, the lower the price, the larger the physical quantities (unless the image calls for a high price). However, sales and total profit do not have to be higher. There is usually a delicate balance between price, volume, sales and profit.
To further complicate this, sales, costs and profits and their timing directly affect the company’s cash flow (a very critical point). This whole aspect is then further complicated by the investment (capital expenditure), financing (equity or debt?) and dividend decisions. Excessive spending on an investment, excessive debt and excessive payouts to shareholders negatively affect the company’s sustainable business growth and reduce the achievable goals. This scenario only shows part of the various aspects that need to be balanced within the broader financial sphere.
Unfortunately, the complication of the example doesn’t stop with finances. Finance affects many other crucial aspects of business. On the other hand, many of the other crucial aspects also affect finances as well as each other.
For example, the financial decisions would have a direct impact on the company’s growth (e.g., geographic expansion and new product development), marketing spending, and employee employment and development. All of these issues would impact financial issues and each other equally.
An integrative business planning approach
The general trend in business planning is to tackle each problem individually and then just put the pieces together and replan if something doesn’t make sense. Business planning often begins with some projected sales and profit numbers in mind. From then on everything is worked backwards.
A much better option would be an integrative business planning approach. The following steps are necessary for this:
- Determine all the salient features of the company.
- Determine the relationships between these salient features.
- Try to solve each feature keeping in mind the losses and effects with other features.
- Use “what if” questions to develop better holistic solutions.
The idea of business planning is not to optimize one aspect of the business and neglect or ignore some others. The various connections (causes and effects) must be considered in an integrated manner. One key distinguishing feature or relationship that is ignored can threaten the existence of the entire organization.
Copyright© 2008 by Wim Venter. ALL RIGHTS RESERVED.