Thinking about creating a new year business plan for 2020? If so, consider spending a little extra time to make three instead. That way, you can operate your business with the ability to accelerate and slow down to reach your destination as soon as possible, while avoiding an accident. That’s why three plans are better than one.
No need to worry, though. It won’t take three times as long as writing a single new year business plan. The second and third plans are simple modifications of your basic “medium speed” plan. The foundational plan is based on your best guess of what you can expect business conditions to be in the coming year. You can downshift or upshift to the other two plans a few months into 2020 if things are turning out not as well as you had expected, or, ideally, even better.
What Are Your Sales Drivers?
If you usually create a business plan by extrapolating current year revenue and expense trends and put them into the next year’s budget, it’s time to sharpen your pencil. What are the main drivers of your sales?
First, you’ll need to think about how your business is affected by various factors. Identify the most important ones. Then, try to estimate the impact each has on your business performance.
Depending upon the kind of business you’re in, you’re likely to find that some of the following “macro” factors impact your annual revenue results:
- The overall strength of the local and / or national economy
- The population growth rate in your community, particularly any influx of the kind of new residents who are your best sales prospects
- Consumer and commercial interest rates
- Labor market conditions impacting your ability to find and keep good employees on board affordably
Add to that set of revenue forecast variables any factors unique to your business, including:
- The planned introduction of new products and services, or discontinuation of any current ones
- The anticipated impact of any new sales and marketing strategy, including planned opening of new business locations
- Projected efficiency gains, whether through new technology, processes or staff training, enabling an increase in your output of products or services at competitive prices
Setting An Expense Budget
The other side of the budgeting part of creating a new year business plan is expenses. Those are usually easier to predict than revenue. Most expense categories correlate to your current fixed expenses, such as rent and equipment lease payments, or are variable expenses (e.g. raw materials) driven by your revenue projections.
There’s more to a business plan than a budget, of course. But, you can’t have one without the other. It helps to start thinking of ways to grow or strengthen your business. After, give those ideas a reality check through the budgeting process.
There’s another audience to keep in mind: potential lenders and investors. Finding a supportive lender might be essential to fulfilling your base level plan.
While lenders rely heavily on your financial track record, balance sheet and possible business collateral or personal asset pledges when evaluating a loan proposal, they also want to know how you intend to use the loan proceeds. In general, the more effort you have put into the plan, the better your chances of getting the loan approved. Or the lower the interest rate you would otherwise be charged.
Creating a business roadmap for the coming year that’s compatible with the three-plan strategy involves giving careful thought to the timing-specific planned expenditures. You need to think carefully about the relationship between the revenue and related expense categories on a timeline basis.
This is where the three-speed triple business planning strategy comes into the picture. Think of it as advance planning for alternative business scenarios, relying on revenue benchmarks along the way.