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Tag: Business Plan

Planning for successful business innovation

Posted on by Susie Kevern

Every business needs to innovate, to stay relevant to their customers and stay ahead of their competition. But successful innovation requires thorough planning and careful implementation. Financial planning is a key part of this.

Lets face it; it’s easier to come up with new ideas to grow your business than it is to implement them. Change is always necessary, but needs to be carefully planned to avoid destabilising the successful business that you’ve taken time to build.

A key part of the planning is what I think of as “Sequence and Cadence”. You could say that they’re the same thing, but bear with me – the difference is subtle.

For successful innovation you must plan to allocate enough time and resources to new projects to allow them to reach their logical conclusion (the cadence) but also balance the timing of competing projects so that they don’t drain your core business of the resources it needs to continue (sequence). A collection of half finished plans could be worse than no innovation at all!

Cadence

When you set out on something new; a product development, a new marketing campaign, etc, you have to commit sufficient staffing/ management/ capital/ investment/ time to give it a fair chance of succeeding. Even the most promising ideas struggle to reach their full potential if they’re starved of the necessary budget or attention. Each project is inherently different, so there’ can’t be a generic “one new development per quarter” approach.

In budgeting, and business planning in general, it’s vital that you recognise this and reflect it in the numbers. It’s also worth thinking about a “what if” analysis: what if progress has been slower than expected but you’ve come this far and giving up now would waste all the hard work – you just need a few more months (we’ve all been there…). When do you draw the line and move on to new opportunities?

Sequence

Sequence is about the bigger picture. It’s when there are multiple projects in progress but a limited amount of investment (time or money) to go around. If you spread your resources too thinly you could end up doing catastrophic damage to the whole business even if individual projects are growing nicely.

A resilient business model has to be grounded on profits and cash from established products and markets. New lines may promise great rewards, but the investment of time and resources that they require will take up cash and add to spending while they are establishing a niche.

This is especially true when the new sales involve customer credit. They can deliver new sales, but the cash doesn’t arrive in your bank account to pay for new marketing efforts until a month or two later.

Keeping an eye on the timing of expected spend and income from new projects is the sort of planning that is much easier with detailed budgets and cashflow plans. Information on how good that glittering opportunity actually is, in comparison to what you’ve already got, and highlighting where the pressure points may be gives you the chance to model how you could work out strategies to keep business running smoothly.

You can find out more about how I help businesses manage their finances here.

How much should you budget to spend on marketing?

Posted on by Susie Kevern

How do you keep control of marketing spend in a growing business? How much should your business be spending on marketing? Is it an investment in the future or just a cost?

Marketing spend is a difficult sell to accountants – there is no way of guaranteeing that it will deliver sufficient sales to cover the cost nevermind grow the business in the long run. It’s easy to argue this is frivolous spending, especially if times are tight.

But without marketing/ branding/ advertising activity there is a serious chance that sales won’t be maintained at a profitable level (or grow to get there) jeopardising the work that everyone else is doing. So yes, marketing is a necessary business investment.

So in the real world how much budget do you allocate to marketing; 2%? 5%? 10%?! and what’s the best way to spend it?

First, I would hark back to earlier posts about creating a cost conscious culture: everyone in the business can have an impact so good communication is vital. Take time to explain the goals to the team and show how they can play their part.

When the main budget is being constructed it’s not uncommon for marketing to be “given” a set amount of budget each month, regardless of future plans. This reflects the fact that ongoing marketing is essential, but wouldn’t it be better to look at the marketing plan and work out a cost of that?

Working in isolation risks creating plans that promise great things, both in terms of the budgeted profit and new prospects, but then fails to deliver. Setting out on to achieve goals when you know you can’t afford the resources that are needed is going to result in missed targets and it is easy to see this as a bad plan rather than a missed opportunity.

So how do you budget for a successful marketing effort?

Obviously it depends on what you want to achieve; doubling sales is likely to be much more demanding that maintaining current sales. But also it depends on the customers you’re trying to reach and the platforms you’re planning to use, so really there is no right answer!

So back to collaboration between the teams at the planning stage:

Focus on quality rather than quantity. That’s about reaching the right customers, and looking at specific activity rather than straight sales increases. Working on multiple fronts at the same time can be costly (and exhausting!) and there will be specific timescales for different offerings (advertising Christmas party bookings in January?).

The other key factor is that success depends on what you measure. It is important to understand what good results for your business will look like, so identify a return on investment at the outset. That doesn’t have to be in money terms (sales gained vs cash spent), why not look at other measures (views, enquiries, recognition, footfall) instead? Once you’ve identified your measure, you need to collect data to measure it – to review and work out if the expected results are being delivered.

As I’ve said before a budget should be a living document; constantly under review. When you’ve got some data, you can check the results against what you expected, and if necessary change the plan.

At this point you can update your forecast with better information to make see the implications of the changes to both profit and cashflow. This allows you to understand what you’re spending, remember why, and keep control of marketing spend in your business.

Better business budgeting: making a more effective plan

Posted on by Susie Kevern

Did you work out a budget for this year, as per normal? Have you thrown it out yet?!

It’s easy not to bother at the moment; the last few years have shown how little certainty we really have when we try to plan ahead and the last 12 months have made it clear that that’s not changing anytime soon.

So why bother with a budget?

In my experience making your own predictions of how sales and costs are going to pan out during the year gives you the background to make order out of chaos. What is the coming year likely to look like? What needs to happen to do to keep all those plates spinning and what power do you have to influence it?

Budgets were first developed in the early 20th Century as a way of keeping financial control on a business. The thinking was that analysis enabled business managers to control spending. But is a budget an effective tool to limit spending or grow sales? I think we would all agree that the 21st Century view is that it NO.

First of all, there are three distinct ideas wrapped up in a budget; strategy analysis, target setting and resource allocation, and that’s where I’d say the theory starts to fall apart. You can’t balance the best case outcome and the worst case outcome in one document without reaching a hopeless compromise.

Strategy Analysis
It’s easy to think of a budget as a plan for the year, but actually it’s more of a description, in numbers, of what you expect your plan to deliver.

Life very rarely goes to plan, but understanding what the world will look like if your business strategy plays out allows you to check you’ve got the right strategy. Will your growth plans deliver the anticipated results? Can you declare the dividends that you are expecting to pay?

A budget allows you to check you’re heading in the right direction.

Target setting
Targets are usually about sales, but regardless of subject a target is always something you want to achieve (or will be a challenge).

If a budget is going to be reliable you’re going to want to keep your sales figures realistic. But how motivating is a sales target that is safe and achievable?

While right at the moment keeping up with last year’s sales may be a challenge in itself, a good sales team will always be aiming for bigger and better.

Yes, the figure used in a budget needs to be “expected” sales, but target setting should be handled separately. There is no real compromise between achievable and motivating.

Resource Allocation
Overhead costs often feature in a budget as a consequence: an uncontrollable add on (or actually a deduction) from sales: staffing costs £x, marketing costs are the same as last year, the insurance cost has increased so something else has to be reduced to keep the balance.

This is not financial control!

First of all there will be interdependencies – controlling cost may mean you haven’t got the capacity to fulfil new sales orders, etc. So the staffing budget needs to be detailed and reflect the strategy.

Marketing spend, and lots of the other costs need to be planned and matched to specific activities (drivers) rather than just using last year’s figure, or a plain percentage of sales. Marketing in particular is a topic for another post, but my message is that this is the time to stop and think about how the bills added up last year and choose what you want to do this year, not simply repeat ad infinitum.

So effective budgeting needs to balance these three competing features. There are other ways that your budget can become more effective though:

Communication
With all of this planning it is important that creating a budget is always a two way process. This is another flaw in the original theory of budgeting. It’s easy for finance to pick a number and run with it, but the people who are talking to suppliers are the ones with the real information. A successful budget involves integrating the plans and barriers for all departments and decision makers.

Challenge
One of the problems with budgeting like this is that sometimes the budget will show a loss on the bottom line, which can be difficult to accept.

The reality of growing a business is that you continually invest in growth so there may not always be a rosy profit available. It’s important not to distort the predictions simply to make the budget look more reassuring. It takes action to change the numbers, it won’t work the other way round. This is where a cashflow forecast is important; in the short term profit is less important than cash and if previous investments are paying off there may be scope to stomach a loss this year.

Review
It’s easy to create a budget at the beginning of the year and leave it at that. But the real power of a budget is to compare real life to what you expected would happen, and work out what action you need to take as a result.

In addition to this there are no rules about how regularly you should review/ update it. It is worth keeping it up to date. If you started last year with monthly sales of £40,000 and in March half your customers closed for several months a comparison between budget and actual sales would not have told you anything about the effectiveness of your subsequent actions.

I like to review budgets at least quarterly to make sure the information is up to date, but its not unheard of to review them several times in a quarter as the facts change.

Good information is the key to making good decisions. Cash is always my first priority, but a well thought out budget is the source of the information you need to make your cashflow forecast and keep your business going, and growing successfully.

Look out for more blogs here talking about how budgets can make your business more effective, and if you would like help reviewing your current budget then get in touch.

How to plan for an unknown future?

Posted on by Susie Kevern

How can you plan for the future when you don’t know what it holds? Come to think of it: what do you not know about your business?

December is usually a busy month for business planning with my clients as we spend time looking at the next year in more detail. That tends to be true even when their year end isn’t December 31st – the change of calendar year is a good time for reflecting on progress and looking ahead to the future.

However 2020 has already been littered with new forecasts, re-forecasts, new opportunities and dashed hopes. We’ve pretty much exhausted all the options for revising the financial detail!

Instead, I’ve set aside time to think about, and crucially, document the things that we don’t know about the future.

We don’t know whether there will be more coronavirus disruption in the New Year, or the impact that a vaccine will have on the economy – can it stave off the predicted recession? We still don’t know what Brexit will throw at us, but we’re used to that by now!

But what about other risks?
What if one or several of your customers moved their business elsewhere? What if one went bust? How reliant are you on a particular customer? What’s the spread of business (and importantly profit) between customers? How much do they owe you?

Where* do you think the risks could be? (* you’re bound to be wrong here, but considering the risks is still valuable). What action can you take to get better information, or reassure yourself?

How about your suppliers? How quickly could you replace one if they hit problems? How close are your relationships with key suppliers? And while we’re on the subject do you have adequate back up if a staff member handed in their notice?

Do you have deposits or prepayments with suppliers that you depend? And what about directors loans? This is getting generic now, because every business is different but hopefully you see where I’m going.

While this isn’t a cheery, “season of goodwill” sort of message the point is that a relatively small amount of time working out what you perceive the risks that your business faces are will let you start to plan around them. You will bear them in mind when you make decisions, perhaps even subconsciously. And most importantly when the worries are on paper, not stuck in your head, you can sleep better at night.

So what did I find out about the businesses I work with?

Firstly, I find it’s always enlightening to look at all my clients together (in private of course). They are a diverse bunch: small and not so small businesses in different sectors.

However looking at the challenges in one can spark off ideas about the challenges in others and that’s one of the benefits of having an almost outside perspective on the business.

The risks that I identified initially were:

  • Unsurprisingly Brexit is still a big unknown (no prizes for guessing that)
  • Continued Covid disruption (don’t even mention the L word) will either be a bonus or a hindrance depending on sector
  • Reliance on key staff is a threat everywhere, which is true of any small business. That’ll result in more efforts to document and share information in the New Year; improving contingency plans especially where business owners are concerned
  • A bit of work needs done thinking about the reliance on certain key customers and what can be done to reduce the impact if they were to disappear
  • And in one business we need to monitor the levels of cash paid upfront to suppliers – cash that would be lost if that supplier was to cease trading

So plenty of work to be done in the New Year thinking about future proofing business, even while we don’t know what the future holds.

If you would like to take a look at where the risks may be in your business give me a shout; I’m always keen to help. You can find out more about how I help my clients here.

Planning for cashflow security

Posted on by Susie Kevern

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It’s finally here: the 4th of July, the day the reawakening begins!

There’s been all sorts of work to adapt operations to make them “Covid secure” – hand sanitiser, face masks, physical distancing, etc. But as well as the practical/ physical preparations, reopening is likely to present financial challenges.

Does this sound counter intuitive? Surely the financial issues came from trying to keep going when there were no sales? When the customers start spending again surely the trouble is over??

I’ve warned before about the cash flow challenges that are likely to hit businesses over the next 12 months so what can you do to create a plan that shows you where the risks are in your own business?

When you make a cashflow forecast it’s not that dissimilar from a P&L forecast – lots of the same headings, but the key thing about cashflow is when the transactions happen.

Usually it feels difficult to run a cashflow forecast more than just a couple of months ahead: there starts to be a lot of assuming which can make the exercise seem pointless.

However a good forecast fulfils two different functions: over the next few months you need a detailed plan; weekly or even daily, to reveal any unexpected potholes along the road. But over the longer term you need to be looking out over at least the next year or two to see what risks you may potentially face in the future as you implement your strategy.

This is especially important right now if you have taken on additional borrowing to see you through this period and also given that you may have pre-Covid tax bills to pay in the latter part of this year.

What do you need to include in your forecast? To start off with look at what’s going on in the P&L; when do you expect customers to pay and when do you plan to pay suppliers.

Some payments will happen monthly, some quarterly and some less frequently than that, so it’s important to try to capture the likely timing.

Right at the moment it’s probably worth thinking about how you’d be affected if some customers start taking longer to pay. Does that change the way you think about pricing? Is it worth offering discounts for prompt payment or taking on extra charges to be able to collect payments by direct debit?

Next on my checklist is loan and HP repayments.

These don’t appear on the P&L at all but are often larger sums of money and usually paid on a direct debit whether it suits you or not.

If you’ve taken advantage of a payment holiday over the last few months how will that affect your future repayments? From what I’ve seen so far Funding Circle are setting up separate repayment plans for arrears, which could make a big difference so it’s worth checking what you have (unwittingly?) signed up for.

Something else that doesn’t appear on the P&L is tax. There are two types of tax that I’d include here; PAYE & NI is payable just a couple of weeks after the month end, so doesn’t distort cashflow too much, however it is easy to “delay“ payment (as no-one chases up on the due date) and then get into hot water in no time. Make no mistake paying PAYE on time is critical.

More complicated to forecast is VAT: it won’t be charged on all your expenses, and not all of your suppliers. VAT makes cash receipts from customers higher than sales in the P&L, boosting your bank balance for a time, so a bonus in the short term but one that can come back to haunt you if you don’t keep track of how much you’re holding on behalf of HMRC.

You could opt for some clever calculations in a spreadsheet, but my best advice is to look at previous VAT bills and try to estimate what percentage of turnover VAT amounts to.

Plus there is no replacement for keeping your accounts up to date to stay aware of any unexpected changes.

So once you’ve got a forecast what are you going to do with it? Well obviously the first thing to look at is what kind of picture does it present? Should you be expecting to be rolling in cash or running out? (And do you believe that? A “sense check” is an important part of the process)

At times like this, when normal service has been upturned it’s often useful to work out a sort of “burn rate” to help you understand how much cash you need to be taking per month in order to sustain your spending.

This is different from breaking even on a profit perspective; notably it will include those loan and finance payments. Note: if you’re looking at life from this angle you should think about setting aside some money for VAT every time you get a customer payment to avoid shocks down the road.

To find your burn rate you need to add together all of your regular spending over a month (or whatever timescale you choose). Compare this to the cash you expect to receive from customers (factoring in VAT!) and the result will show you what you expect the change on your bank balance will be. If the balance is reducing how long can you keep this up for? What can you do to slow down the reduction?

If the bank balance is increasing think about what you’re doing with the money; do you need to save money for future tax bills? Could you pay back lending faster to save interest?

Over the next couple of weeks I’ll be looking at what you can do to use the information that a cashflow forecast provides, but in the meantime if you’d like some help feeling confident about your plan for the future then give me a shout; I’m always here to help.

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Make a Plan

Posted on by Susie Kevern

How do you make a plan for the rest of this year? If the last six months have taught us anything it’s that we can’t predict the next twist in the story. So is planning a pointless waste of time?

This is the (polite) argument that I’ve been engaged in this week while I was supposed to be working hard on other things. Granted, it’s difficult to see what the future will look like, but is planning still worthwhile?

My point is that actually we have never known what the future holds – the unknown is nothing new. What is hitting harder at the moment is the uncertainty; the range of potential outcomes that are theoretically possible and those that haven’t seemed possible up to this point. There’s also a big chunk of consequence; in many businesses there’s less margin for error now.

So in the current scenario I’m pushing to follow General Eisenhower’s dictum: “In preparing for battle I have always found that plans are useless, but planning is indispensable.”

Without having devoted some quiet time to assess what we’d like the plan to be and, more importantly, what we’d like it to deliver we won’t have the right perspective to spot potential opportunities as they arise.

While it may take time, focus and some out of the box thinking, having a plan which you can adapt later remains the best way to order your thinking and prioritise action. And who knows, that preparation may put you in the position where you can see new opportunities arise out of the uncertainty!

Does my Business Plan need a Mission Statement?

Posted on by Susie Kevern

Mission statements are just corporate waffle, about “empowering”, “finding new paradigms” and “evangelising findings”. Right?

Recently I have been working in developing Business Plans with two (very different) clients. As part of my preparation for this I started working on my own Business Plan.

It has been about two years since I wrote my original plan. At that point I was just beginning – exploring what I wanted to do and trying to work out what my clients valued about the work I was doing for them.

So it was very vague in some ways, but it was specific in others. For example I knew, and wrote down that I wanted to limit my working hours to school hours, and then only during term time.

This has proved really valuable – when things were going badly I could remind myself what my original idea was and see that if I could pull it off it would be worth it.

Once or twice people suggested full time roles to me which would have been financially lucrative, but demand much more time. My written down business plan enabled me to compare those opportunities to my expectations and see if a job was something that was worth sacrificing my flexibility for. Clearly it wasn’t, or I wouldn’t be writing this now!

Over the course of the last year things have gradually fallen into place and so it seemed like a good time to refresh my business plan to fill in the gaps in the previous one, and set new targets for the next few years.

I have developed my own template for my clients’ Business Plans; a bit more personal and detailed than some of the generic internet ones but basically covering the same material. So, I worked through it and finally came to the mission statement (I think you should leave the Mission Statement to last, because sometimes it’s difficult to understand what’s important until you have focused deeply on what you want to achieve and how you’re going to do that.

Initially I thought that I might just write a sentence, but I have recently read “The 7 Habits of Highly Effective People” which extols the benefits of having a Mission Statement that means something to use as a guide to what really matters. So I really thought about it and lo and behold I settled on:

“I will help small businesses control their outcomes by taking the time to understand their practices and problems and by respecting their hard work and their trust in me. ”

This reflects my clients’ feedback on how they feel about the way I work, but most importantly I feel that if I can stay true to this I will be really proud of and fulfilled by what I do.

With a Business Plan that’s written down I have the ability to look back in one, two or even five years and see how the actual progress compared to my plan.

So, to answer my original question, I think my Business Plan is better for having a statement at the beginning that sums up, in one sentence, what it is that’s important to me and what I’m aiming for.