THE BUSINESS ODYSSEY – Business Planning An Overview

“Alice came to a fork in the road.  ‘Which road do I take?’ she asked.
‘Where do you want to go’ responded the Cheshire Cat.
‘I don’t know,’ Alice answered.
‘Then,’ said the Cat, ‘it doesn’t matter.’”
– Lewis Carroll, Alice in Wonderland

Unlike Alice, for business leaders the choice does matter.  One road may take the business on a perilous journey with an uncertain but possibly rewarding outcome.  The other road may end in disappointment or destruction.  Decisions and uncertainties are inextricably and unavoidably part of business.  Business planning, when used correctly, provides the needed navigation for good decisions in an environment filled with uncertainty.

This edition of The Business Odyssey offers a general perspective of business planning.  This issue will be followed by more specific planning topics presented with greater detail.  I separate planning into four distinct subjects: strategy, operations, ad hoc opportunities, and products.  Each of these four topics serves the business in different yet interdependent ways.  Treating each planning theme independently encourages the business to approach each with rigor and discipline using precious resources more efficiently.

Translating business goals, objectives, action items, assumptions and other factors into the quantitative language of finance, in the form of projections, forecasts or pro forma financial statements, is an essential part of planning.   Financial analysis and forecasting uses a different language intimidating many and misunderstood by most.  A future issue of The Business Odyssey will discuss financial analysis in detail.

The Importance of Business Planning
Every struggling company with which I have worked had at least one symptom of trouble in common: not a single one had a “real” business plan much less a proper planning process.  This is hardly a coincidence.  The absence of a formalized planning process is a significant sign that a company is not yet growing up.  The excuses always imply: the future can’t be predicted.  True to a point.  Those that adopt that view and avoid planning however, reveal how little they understand about planning and about business.

The purpose of business planning is not to predict the future but rather to take the future seriously.  Rigorous, disciplined and meaningful business planning reduces uncertainty and manages risk.  Others, besides the business, rely on the outcome of effective planning.  Investors and lenders, for example look to the quality of a business’s plan and planning processes as a proxy for the risk associated with providing capital. The following example illustrates how thorough planning and rigorous financial analysis produced $7 million in debt capital for a start-up client.

A Successful Financing – Planning Reduces Uncertainties and Manages Risk
We were approached not long ago by a potential client to help raise $7 million in capital to acquire operating leases for multiple healthcare facilities.  While the two executives had extensive healthcare experience the business was a start-up.  Further complicating this capitalization was the founders’ unwillingness to part with any ownership of the new company.  Anyone experienced in capitalizing start-ups would quickly point out that $7 million of debt for a new company was not possible.   So despite making the obvious choice we undertook the challenge.

The executives presented us with the one-page financial projections prepared for the project.  Needless to say, these projections raised more questions than provided answers.  The uncertainties were many.  Rather than give up, we focused on identifying and resolving the critical uncertainties.  How much capital was really needed and how was it to be used?  The answers from the founders were general and vague.  The financial analysis they had prepared lacked sufficient details to credibly answer these two basic questions – how much and for what purpose was capital needed.  We produced a detailed financial analysis that included how and when revenues would be earned; what expenses needed to be incurred and when; and we carefully analyzed when revenues would be booked, invoiced and collected.  Doing the same for expenses; incurred and disbursed.  Focusing on the uncertainties we showed that revenues were occupancy fees earned daily and predominately reimbursed by the Federal government (Medicare).  The capital required was to provide liquidity prior to receiving payment from the government.

By focusing on resolving the uncertainties we developed a defensible plan that allowed a lender to use the earned but unbilled fees as collateral.  The company successfully secured a $7 million revolving line of credit to satisfy its working capital requirements using unbilled receivables.

This example illustrates how rigorous planning is used to resolve uncertainty and achieve outcomes otherwise seemingly insurmountable.

Planning as a Business Process
Good planning creates predictable and reliable outcomes.  These outcomes are a result of clear and actionable goals and objectives.  Predictability comes from explicit assumptions and a well-conceived Point-of-View.  Adopting a disciplined planning process produces clarity, accountability and manageability.  When executed individuals, especially executives and board members, use precious time with greater efficiency.

A disciplined planning process is periodic, clear, written and most importantly taken seriously by senior executives.  Planning processes are reliable and repeatable producing defensible and actionable plans.  Businesses use standardized tools such as reporting and analytical templates as well as meeting agendas and schedules to ensure completeness and timeliness.  Planning includes routine monitoring by using frequent status reporting and review meetings.  Routine monitoring need not be burdensome to be effective.  When action items are clear, measurable, temporal and assignable monitoring performance can focus on exceptions.

An effective plan ensures each individual, expected to execute specific action items, have a clear understanding of their responsibilities.  These individuals should have a sense of ownership and personal responsibility; producing better results rather than imposing responsibility unilaterally or arbitrarily.  In no way does this subordinate the importance of executive or board reviews and approvals.  Distinguishing preparation from review and approval improves adequacy, feasibility and responsiveness to the business’s objectives.  Robust planning produces plans everyone believes, identifies specific actions, describes the outcomes expected, assigns responsibility to specific people, articulates critical assumptions, has a schedule with measurable milestones and includes a defensible budget.

Strategic Planning
Strategic planning is the process that defines the business’s direction, overarching goals and competitive position.  The strategic plan is the approved and adopted outcome of a strategic planning process.  A valid strategic plan is the foundation executives use to make decisions allocating resources and choosing one alternative rather than another.  Strategic plans are typically longer term (three to five years) but evaluated annually. We’ll have more to say about strategic planning in a separate issue of The Business Odyssey.

Operational Planning
Operational planning and the operating plan produced, is the responsibility of each revenue and cost center.  These plans describe the specific outcomes and necessary initiatives required for the year that support the company’s strategic goals and objectives.  The operating plan includes each business unit’s expected accomplishments, action items, initiatives, budgets, scheduled milestones, and assignment of responsibilities. Individual operating plans should ultimately be consolidated into a single company-wide operating plan.  To be effective, operating plans need to be clear, actionable, temporal, assignable and measurable.  The financial forecasts must be responsive to the strategic plan adopted by the company.

Opportunity Planning
Operational planning typically occurs annually.  Businesses need to anticipate and prepared for unplanned opportunities.  Adopting a process specifically designed to evaluate and respond to unplanned opportunities introduces reliability, predictability and manageability to what would otherwise be distracting, overwhelming or overly burdensome.  Opportunity planning can be considerably more streamlined and ad hoc without compromising completeness, rigor and defensibility.  Opportunity planning will be discussed in more detail in an upcoming edition of The Business Odyssey.

Product Planning
Businesses that depend on product advancements can benefit from a forward looking Product Plan (also known as a Product Roadmap).  The level of detail depends on the nature of the products.  The product plan for a technology company may determine that certain future products depend on technology capabilities that currently don’t exist.  Alternatively, an apparel company may need to identify certain consumer trends.

Business planning is a process not an end-product (a plan).  The value of planning is realized by thinking in advance about the minute details, the intended outcomes, the threats and the unknowns.  Effective planning is rigorous and defensible.  The value of planning is reflected in all the little decisions that can be made along the way.


“If you fail to plan, you are planning to fail!”
Benjamin Franklin


Published by

Andy Harvey

Businesses struggle and fail to perform because they don't grow up. Mature businesses, like mature, well adjusted, functioning adults, have the skills, the tools and the intelligence to perform routine activities, make decisions and cope with uncertainty. Andy Harvey is an experienced management consultant helping middle-market companies mature, overcome crisis and succeed. He has advised companies on growth strategies, corporate finance, business infrastructure, turnarounds, restructuring and crisis management. His thirty-years of consulting and operating experience has included industries such as: manufacturing, aerospace, defense, technology, energy, environmental services, financial services, scrap metal, transportation, distribution, medical devices, interior design and others. He specializes in working with growing, under-performing and distressed companies applying expertise in corporate finance, crisis management, competitive strategy and operating performance. Mr. Harvey has held positions as CEO, COO and CFO as well as CRO (Chief Restructuring Officer). He has navigated companies through Bankruptcy, fraud (alleged or injured), distress, acquisitions, succession and other changes.

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