Operations, finance and marketing all have a role in business planning process
by Robert Grede, for SBT
Whether your company is large or small, a good strategic plan is essential. Yet planning is often met with resistance within a company. This opposition is based upon:
1. The sense that there are "more important" things to do.
2. The perception that planning is simply "busy work" and not useful.
3. A reluctance to commit to goals in a rapidly changing environment.
As the owner, you must emphasize the importance of planning to your employees. If the boss isn’t sold on planning, nobody else will be either.
Here are some of the benefits of planning:
— Encourages thinking ahead in a systematic manner
— Sharpens the company’s focus
— Prepares for unforeseen developments
— Leads to better coordination of company efforts
— Helps develop performance standards
How do you start? Every business has three fundamental parts: operations, finance, and marketing. And each has its own part in the planning process.
Ask most entrepreneurs and they’ll tell you that operations is the most important. "Build a better mousetrap and the world will beat a path to your door!" "Without a good product, nothing else matters."
They have a point. No business will be successful unless it satisfies its customers’ needs and wants. Whether a product or a service, you must deliver on your promise.
But talk to your accountant, banker and your company bookkeeper, and they will tell you that money matters most. "It’s the blood that feeds the organization." "Cash flow is everything."
They, too, have a point. Over time, without sufficient income to pay expenses, your company is bankrupt.
Marketing always seems to get shuffled into third place. And that’s wrong. Marketing is the most important.
I admit I’m prejudice. But hear me out.
Without customers, you have no business. It doesn’t matter how good your product is if no one knows about it. It doesn’t matter how well financed your firm is if you have no customers to create cash flow.
Business begins with marketing. When developing a strategic plan, it is the first part that needs to be written.
A good strategic plan begins with sound estimates of your company’s sales objectives. These estimates are based upon a variety of factors:
— Last year’s sales
— An estimate of your promotion campaign’s effectiveness
— New products you will be introducing
— An analysis of your competition
— The economy
Once established, these sales estimates are shared with operations and finance to help them develop their plans.
Too often, companies calculate their manufacturing capacity and tell the sales department how much needs to be sold. This is particularly true in capital-intensive businesses where capacity utilization is critical (e.g. airlines, foundries, printers). This method often results in deep price discounts and declining (or negative) profit margins when sales quotas are not met.
Had they started by estimating their sales, they may have avoided those problems. Knowing in advance that sales may not utilize capacity can help companies plan cost-cutting methods in order to assure profitability.
Begin planning early. It’s not too soon to start developing your 2004 strategic plan. Start by estimating sales for the coming year, and then begin developing the operations and financial plans based upon those assumptions.
Robert Grede teaches Entrepreneurial Management at Marquette University. He develops business plans for companies in a wide variety of industries. www.thegredecompany.com.
Sept. 19, 2003 Small Business Times, Milwaukee
