What is business planning and why is it important?

Business planning is the process of evaluating everything your business could do, then narrowing it down to the strategies forecasted to produce the best results. Business planning is a crucial function of management in determining where to spend a businesses time, human capital and money. Read these 6 crucial steps in achieving effective business planning for any business.

1. Identify everything your business could do.

Business planning first and foremost starts with re-establishing what your business goals and objectives are. The next stage is determining a set of strategies that can match the outcomes set out in your business goals.

Business planning is not something that can use a cookie cutter approach. Every business needs bespoke solutions. There are numerous ways to undergo idea origination for business planning. Working with CFO Evolve, we use a tried and tested method for evaluating all potential strategic levers that could be implemented. Our process includes; taking a deep dive into your company, your competition, the market and your industry value chain.

Planning strategies must first start with a re-examination of your existing business. Someone with expertise must first evaluate your core business. If you are not achieving the acceptable levels of profitability, a focus on improving your core business is essential before anything else.

After that we look at any number of potential strategies ranging from acquisitions, investment in sales & product to debt & equity financing. Our part-time CFOs are experienced with planning and executing every stage of these strategies.

2. Refine what your business should do.

The next challenge in business planning now becomes selecting the strategy or strategies that will have the biggest impact on your business.

The process of elimination should be inextricably linked to your business goals and objectives. What is your ultimate end goal? Is it to get the best financial return, process improvement, scalability or quality improvement for example? Some other factors to consider include; the estimated cost, the time and human capital required, resources needed and strain on existing business that it might cause.

Another important step is to draw a line in the sand what you aren’t going to do. All too often businesses try too hard to implement too many strategies. While many of them may be excellent strategies, over-extending your people and resources will seriously impact the effectiveness of each strategy leading to a suboptimal results across the board and could even affect your core business. Directors and CFOs should aim to prioritise strategies then maintain a disciplined focus in order to maximise outcomes.

3. Evaluate funding

Now you’ve narrowed down the best strategies, a critical step in effective business planning is a thorough analysis of the funding needed to see the strategies in place executed through to the end. There is no point in spending time business planning if there is not going to be budget available to see the strategies implemented. Management needs to consider many factors such as; can the set of strategies be executed from available cash flow, will I need to obtain debt and/or equity financing and what is the ROI on these options. This is something an experienced CFO should be very capable of.

Typically, part-time CFOs at CFO Evolve conduct 3 way forecasting to give you an accurate picture of the internal and external costs required to execute a strategy. This will also give you an accurate picture of what your business could look like under certain scenarios. 3 way forecasting will also be absolutely essential if you wish to apply for external financing. Financiers will want to see these statements and preparing comprehensive and accurate documents will increase your chances of receiving funding.

Read our case study here how we helped a client prepare for, undertake and repay a loan all within 16 months.

4. Ownership accountability and communication

Effective business planning is untenable without discussion and delegation for who is responsible and accountable for every stage of executing the business plan. Clear communication is absolutely critical to effective execution. Therefore, a wider discussion should also be had with all relevant stakeholders and employees to ensure everyone is clear and committed on direction and objectives of the business going forward.

5. Implementation and execution.

The most important step. Even the best business plans are rendered useless by poor execution. This is the time to act, whether it be closing debt or equity financing, hiring more staff, developing products or investment in marketing, you will need effective and experienced people at every stage to carry out your business objectives.

6. Monitor and Measure

As the famous saying goes, “if you can’t measure it, you can’t improve it”. Execution on a business plan is a significant achievement, however it’s important to remember it doesn’t end there. CFOs are central to this process as they have oversight across the whole business.

An effective CFO will monitor and manage the company’s dashboard across the business to ensure the various areas of the business are reaching their potential, the strategies are being completed and the business is reaching its forecasts.

Take your business planning to the next level? Contact CFO Evolve.

CFO Evolve specialises in outsourcing part-time CFOs for businesses who want all the benefits of having a CFO without the cost of a full time employee.

If you would like to understand how a part-time, interim or virtual CFO can help with your business planning get in contact with us today.