Is Planning Really That Important?
May 25, 2022
Solid growth in a small business or SME does not happen by accident. It is planned growth that creates solid growth. Similar to any large, highly organized business, a small business or SME must plan not only for the very near future but for the intermediate future, as well. While large, publicly traded corporations with highly specialized financial employees can easily plan for long-term growth, smaller businesses and SMEs realistically will most likely plan for the next year...or, at most, two or three years into the future. Regardless of the timeline, it is analysis and forward thinking that goes into the planning process that is so important.
Turn Optimism into Reality
Although owners and management of small businesses and SMEs are notoriously optimistic about the future of their respective businesses, they must take judicious steps to ensure that the optimism becomes reality. It is great to dream big and dreaming big is an important motivator, but solid growth is more about planning than dreaming. Realistic goal-setting allows management to judge performance over time and make changes when necessary to achieve intended goals.
Realistic planning coupled with the ability to meet commitments to all stakeholders creates success. Risk is created, however, when a business lacks planning. This results in revenue being either less than expected or more than the business can efficiently handle. When revenue is on the downside, a myriad of problems can develop...cash flow, employee motivation, future viability, management stress, etc.
On the other hand, extraordinary growth can also be a problem as it cannot automatically be assumed that the business can continue on the same path indefinitely without solid planning. While resources may have been adequate at the onset of the business, those same resources might one day reach their full operating efficiency. Suddenly, a small business or SME might find that its growth cannot continue without an influx of additional resources...employees, physical location capabilities, additional vendors, and financial capital...all in need of planning.
Consideration must be given to all components of a business when planning:
Budgets and cash requirements: Prepare short and medium-term budgets including future cash flow projections. Budgets will provide goals for the business to achieve and serve as a roadmap and benchmarks to judge performance. Cash flow projections will allow the business to determine if future cash inflows will be sufficient to service cash outflows or if additional funding or financing will be necessary.
Human resources: Businesses must plan in advance if additional employees will be needed. This planning must include salary and benefit projections, skill sets needed, training, and even succession plans if and when various employees leave.
Fixed Assets: Fixed assets are usually expensive and their acquisition must be planned in advance. Will fixed assets be purchased for cash, purchased on installment, purchased with borrowed funds, or leased? Planning should encompass not only the purchase of additional fixed assets but there must be consideration regarding what current fixed assets might need to be replaced or upgraded.
Location: Depending on the type of the business, planning involves a business location...lease vs. purchase, size, proximity for customers, cash outflow, and expansion capabilities.
Technology: All businesses use technology...some more than others. Hardware and software needs must be able to handle not only the most basic needs of a business but allow the business to improve operational efficiency and increase output.
Supply chain management: An effective supply chain management (SCM) system is not just about ordering inventory and supplies from vendors. An effective SCM system integrates all processes from origin to the destination (customer) throughout the entire business. Each facet of the SCM system must be analyzed to produce maximum results.
Vendors: As a business grows, vendor expansion must be planned for to handle increased volume of raw materials and inventory, quantity cost savings, and contingency backup plans with alternative sourcing opportunities in case some vendors are not able to handle planned needs.
Marketing: All marketing opportunities should be explored to determine if there are underserved markets, additional target markets, or opportunities to expand and/or diversify products or services offered to further capitalize on the strengths of the business.
Capital structure: Certainly, a business must plan for debt and/or equity financing as needed for growth. A business cannot wait until funds are needed and then start trying to secure needed funding. Plans must be made in advance regarding amounts and dates when the business will need additional cash.
As a small business or SME grows, it can quickly outpace its internal resources. It is critical to constantly assess strengths needed for expansion and how to improve upon inherent weaknesses that can limit growth. A key ingredient for successful business growth is planning in all functional areas. Ultimate growth cannot occur when one area of a business is ready for the future but other areas are not. Planning and supplementing required resources in all areas of a business early in the growth process lays the foundation for solid, future growth rather than interrupted growth due to inadequacies in one or more areas.
So, is planning really that important? Yes!