This time of year our thoughts turn to falling leaves, warm sweaters, end-of-year rituals—and, yes, annual business planning. It seems appropriate that as the year winds down in preparation for new beginnings, we also reflect on our business strengths and weaknesses, financial situation, and how we want to move our companies forward.
There’s been a lot of discussion in recent years, however, about the value of annual business planning. Some say companies have made the annual planning process too complicated and stringent, essentially stifling creative thinking and agility throughout the year. Others warn that it can inhibit long-term thinking because companies tend to focus only on driving results for the upcoming year. And then there is always the debate about whether annual business planning is even relevant for entrepreneurs who need to be more fluid as they continually try new things and adjust to find the right formula for success.
Despite these differences in opinions, however, most experts still seem to agree that it’s a good business practice to look up from everyday operations at least once a year to understand where you are today and where you want to be in the future.
Here’s what they say are some key elements to effective annual business planning:
- Include active debate on strategic issues. Rather than just compiling and presenting information, the annual planning period should be used to openly discuss and decide on how to handle strategic issues that will have the greatest impact on future business.
- Think long-term. Even though your plan may be confined to a 12-month period, think of where you want to be in three to five years first. Then make sure you include budget and activities to reach long-term goals—even if you won’t see ROI in the upcoming year—in the annual plan.
- Focus on high-level strategy. Your plan should primarily offer high-level direction that gives your various operating groups the flexibility to think creatively about how they can help the company reach its goals.
- Don’t limit strategic thinking to once a year. These days all companies need to be more agile in their response to competitive threats and opportunities. Make sure your annual plan provides that leeway and encourages strategic discussion and decision-making throughout the year.
As a contractor, it’s important that you have business planning in place. Lenders, investors, and sureties certainly like to see this information when they evaluate your company for financing and bonding. But even more importantly, when done right, annual business planning can set the stage for a more successful year and take you one step closer to reaching your long-term goals.