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Planning for Success

Written by: Sue

Article Overview: The first question many small businesses ask themselves is "why bother performance analysing and planning, things seem to be going ok. Besides, it's too hard and I don't have the time or know exactly where to start!"

Planning for Success

But the reality is that in the public and private sector, in business large or small, there are really only two ways to create and sustain superior performance over the long haul.

First, take exceptional care of your customers via superior quality and service. Secondly, constantly innovate.

Obviously, these two activities do not constitute all that is needed.

Sound and realistic financial performance analysis and planning controls are essential. Structured, informed and commercially aware planning is not a luxury but a necessity.

Look at this case:



SITUATION: A well-established, 40-year old company operates in a relatively mature and competitive market, experiencing 2% to 3% average annual growth. Management seeks to achieve a 10% annual growth rate by increasing revenue, gross profit and cash flow.

ACTION: The company decides to embark on an aggressive marketing and sales campaign, offering modest discounts [and we saw what effect they can have on volume expectations last month] and more attractive payment terms to attract additional customers and increase volume. Backup stock to service this campaign was estimated.



RESULT: The company does meet its 10% growth target, but delivers an annual operating loss. Worse yet, the company’s cash position is significantly eroded.

And the problem? The cost to obtain the additional volume (and hopefully market share) was more than the gross profits generated by the increased sales. And, by offering more favorable payment terms, debtors increased putting a strain on cash flow.



Had management spent more time preparing and understanding financial projections for volume and gross profit gains, and the additional marketing expenditure - versus knowing the increased volume needed to cover any discounts offered, plus projecting the rate of debtor growth, which of course has to be funded from cash flow, the potential outcome of this strategy may have been different.



This story is not uncommon. Many businesses, regardless of size and years of operation, become commercially sluggish while operating in mature markets, where growth is minimal and competitors are suffering the same dilemma.

In market conditions such as these, companies require more “lateral-thinking by management”, considering different strategies for more challenging economic conditions and market dynamics – i.e. new competitors and/or products!



Competitors change direction and consumers change their expectations – both requiring constant re-evaluation of business practices and objectives.

Strategic or tactical changes brought on by the above conditions also require the right financial astuteness and capacity to effectively and profitably take advantage of opportunities that arise – like a competitor ceasing business or a new consumer product arriving on the scene, e.g. the i-pod in portable music.

The need to grow revenues and the customer base may not be supported by management’s understanding of the financial platform and cash depth [i.e. the P & L and balance sheet status] to support growth targets. Risk is always a ‘silent’ partner in any new strategy.



Projecting the positive financial outcome of any strategy, over a range of possible commercial variables, is the job of management.

Timing is critical – consideration of both market and economic conditions must be factored into the best ‘launch’ date for the new initiative. Many new campaigns go off the rails because the timing is off – e.g. just after an increase in mortgage rates, or during a holiday period when discretionary income is targeted elsewhere by consumers.

Growth for the sake of growth is not enough – to be successful your company’s overall objective must be to either generate cash or generate growth. Very few companies can to both at the same time - simply because growth usually requires the use of cash!

The secret lies in your company’s financial ability to control the balance between growth and liquidity.

Finally, is it always important to identify and quantify the key drivers of results [i.e. your key performance indicators].

What has the greatest impact on your bottom line – selling price, sales volume or product cost?
How does advertising affect volume versus the expense impact?
What else suffers if you have increase advertising?
Which of these elements do you have most control and knowledge of?
Do you know how changing one element affects others, financially?
Ask yourself these questions:



Where are we now? - and why are we here?
Where to we want to go, and why?
How do we get there?
How much will it cost?
Can we afford it now? - When?
Who/what do we need to help us?
And once underway –

Are we moving in the right direction? How is this measured?
How far have we come? How is this measured?
Do we need to change ANYTHING?

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Article Tags: aggressive marketing, attractive payment terms, case situation, cash flow, cash position, competitive market, debtors, financial performance, financial projections, gross profit, gross profits, growth management, growth target, long haul, market share, performance analysis, private sector, profit gains, sales campaign, two ways



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Re: How do you make the most of your day? - Planning, To Do lists, and deadlines all help me. Also being self critical of my own time management helps me raise the bar. I still check email too often though.
Re: THE SECRET TO SUCCESS IS ALL IN YOUR HEAD...RIGHT NOW!!! - Success = Thinking (Head) + Heart (Feeling / Interest) + Hand (doing/ action). Success - H3 Robert
Re: Success - I think it was Gary Player who said the harder I practice the luckier I become when it came to his success as a world class golfer. Planning and dedication to a task can make all the difference between success and failure. MichelleJ
Re: Quote of the Day - "If you hesitate, some bolder hand will s - Excellent quote, Evan. This reminds me of the saying, "The early bird catches the worm." It's important to act on impulses, rather than hesitate and plan. Planning isn't a bad thing and is warranted in certain cases, but those who act quickly will get a step ahead of the competition.
Nice List - Nice list, and I agree with everything you all have added! Planning is the biggest one of all! Look at everything from every aspect possible, and then ask others to look at it as well. It's extremely important that you consider everything before jumping into things, and it goes so much smoother! Also, some young entrepreneurs tend to have an unrealistic mindset (I can sell 4000 of this product in my first week!). Make sure you know what you're getting into, and don't expect something that won't ever happen. ~Marie


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