Where Am I Headed?

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MANAGEMENT

Make time for strategic planning.

Strategic planning is not usually a strong suit of
most entrepreneurs. They have a great initial idea
and know how to turn it into a business. But then,
they become too involved in day-to-day affairs and
do not take the time to plan where they have to
be in five, 10, or even 20 years to stay competitive.
No one should start a business without a vision of
what their company should be at some point in the
future. Unfortunately for many businesses, the intermediate
stages do not get planned, goals get forgotten
in the details of everyday life, and suddenly the
calendar reads 2036 instead of 2016.
There is no magic formula that will provide specific
steps to achieve personal and business goals; each
individual and each business has different needs
and abilities that must be factored into the desired
results. The starting point, however, is the same
for everyone since there is a symbiotic relationship
between a business and its owner.

Taking the First Step

First, determine your personal objectives and needs:
current income requirements, retirement savings
plans, the future for your spouse and children inside
or outside the business, and the amount of personal
vacation time you want. If personal goals are set too
high, disappointment will stifle forward momentum;
conversely, if goals are set too low, underachievement
may stall growth.
Specific achievable targets are essential. Common
quantifiable goals include sales volume, gross margin,
profit before income taxes or debt repayment. Other
goals that are quantifiable but may be somewhat
subjective include attaining specific market share
or increasing a client base.
Because most businesses are cyclical, it is essential to
establish three-to-five-year goals that take into account
how progress is going to be made in smaller periods,
such as each quarter. Frequent reviews will monitor
progress and allow any redefinition of the goals to
meet the changing reality.

Make a CPA part of your team.

You Are Not Alone

You will not be able to achieve your business goals
without considering your own abilities and shortcomings,
future staffing needs, and any assistance from
outside consultants to supplement missing skills. You
will need inputs from all current staff members to
determine whether existing equipment, hardware,
software, physical location, transportation, financial
services and communications can handle the future
projections.
Objectivity is essential to good planning. A Chartered
Professional Accountant (CPA) who understands your
personal needs, your business, and the financial information
required to produce meaningful projections
should be part of your team. Not only will your CPA
help map the future, but also will be able to support
any application for external financing.

Who Are We?

Businesses often try to be everything to everyone.
Thus, clients and customers become unsure of the
ability of the business to support all the products they
sell. As part of the planning process, it is essential to
ask yourself:

  1. What business are we in?
  2. What business do we want to be in five years
    from now?
  3. What do we do best?
  4. Who are our main customers and what do
    we provide to them?
  5. What services or products provide the most return
    on investment of staff and production facilities?

Analysis of these five areas should show you where to
concentrate your production and marketing energies.
Such analysis will help define achievable goals and
guide your planning for the next three to five years.

Projecting Costs

Once the goals have been determined, it is necessary
to project costs and the need for funds. Such information
includes:

  1. Production costs, either by unit or as a percentage
    of sales, include labour, material, transportation
    and amortization of equipment.
  2. Selling costs as a percentage of sales include
    marketing, advertising, entertainment and
    travel expenses.
  3. Administration costs generally include all costs
    not directly tied to production.

A good starting point for making three-to-five-year
projections is a line-by-line review of financial results
for the last three to five years. This will provide insight
into annual sales, expenses, profit and taxes and show
yearly changes in sales and costs as well as the ratio
of costs to sales revenue. Management can use these
ratios to predict the proportional contributory costs
of many expense areas to the realization of projected
sales. For example, if over the last five years advertising
represented about 2% of sales, you could use this figure
to estimate the cost of advertising needed to produce
your sales projections.

Personal Time Matters

Success in business depends upon maintaining a balance
between time spent in business and time spent satisfying
personal needs. Therefore, when establishing goals,
consider how your personal needs will impact your
business and its long-term strategy.

Anticipating Change

You also need to consider the impact of changes such
as a divorce or the loss of a key business associate or
important customer. You must have a fallback plan and
sufficient resources to navigate through the hard times.
Review both the short-term and long-term plans on
a regular basis and adjust the expected outcomes to the
new information. It is doubly important to review and
update plans in the event of dramatic life changes or
opportunities.

Let the Business Work for You

Time and resources are limited. Proper planning is
the best method of ensuring the business is working
for you rather than you working for the business.

 

Disclaimer

The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.

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