Planning is essential to success
We’re certainly happy that 2021 is behind us. Many businesses faced significant challenges – staffing, increased costs, loss of sales, reduced supply and demand and an uncertain future. As we enter 2022, hopeful that our business will return to some degree of “normal” and staffing problems will be just a bad memory, we are challenged by two strategic questions. What did we learn in 2021, and what are my plans for my business in 2022?
Benjamin Franklin once said, “If you fail to plan, you plan to fail.” Every organization from professional sports and large businesses to nonprofits and government entities make plans. Franklin’s words tell us that planning is essential to success. The fact that a plan exists is no guarantee of success; however, spending time developing your plan outlines your strategy for achieving success and prepares you to address problems that arise (and it will happen) throughout the year.
Your business plan helps you to turn your dreams into reality. Your ideas are transformed into measurable objectives that are easily monitored and changed as necessary. For example, do you have an advertising plan? Did you have an advertising plan in 2021 and did it work for you as planned? What was the purpose of the plan and how did you measure it?
Plans allow for accountability within your business and help to ensure that all of your team members understand your vision and how to achieve it. Reflect on 2021 by asking yourself “What worked well and what didn’t?” Spend time examining your financial ratios, especially net margin, COGS% of sales, and indirect costs as a percent of sales. How do your ratios compare with your industry averages?
When you have identified your objectives for 2022, translate the plan into a financial projection. Create a budget and remember that it must support your vision. I prefer to start with Sources and Uses of Funds, Existing or New Loans, Expenses and Labor, and Sales Items. Using these documents, you are able to prepare Income Statements, Cash Flow Statements, Balance Sheets, and conduct a break-even analysis. Using these documents, you are able to compare actual performance against the plan, allowing you to make changes as necessary.
Joe Roy is president and CEO of the Coastal Entrepreneurship & Innovation Institute.