Why Have a 3 Year Business Plan? 

Developing and writing a 3 Year Business Plan requires significant effort from several people in an organisation. For an SME this amount of effort can seem disproportionate in relation to the perceived benefits. 
 
Some businesses have longer planning horizons, particularly when R&D investment, plant construction and product development cycles are involved. So, it’s not unusual for the automobile, oil, nuclear and aviation industries to have 5 – 10 year planning horizons; the Japanese have been known to work on 25 year planning timescales! So a rolling 3 year Business Plan, perhaps with a summarised extension to 5 years, can’t be seen as unreasonably burdensome! 
 
This applies as much to SMEs as larger enterprises. Should you need help and support to develop your Business Plan then select a Mentor who specialises in this field. 

So, why have a Business Plan? 

Budget Reference 

Year 1 of the Business Plan provides the framework for Year 1 detailed operating budgets. This is a basic reason but it’s important because it puts the first year in the context of planned growth over future years. Flowing from this is the comparison of budget with actual results and additional management information (e.g. project accounts) which enable a board to make appropriate decisions. 

Funding Applications 

When external funding is required, perhaps to invest in growth enabling new premises, additional or high tech plant and systems, hire key staff, etc., any commercial lender will be more likely to support a funding application against a credible Business Plan. 

Staff Development 

The Business Plan can be used as a reference in appraisals. Staff should understand how they can make their individual contribution to achieving relevant targets in the Business Plan. Their careers will advance according to what they achieve. 

Investors 

From time to time external parties may express an interest in buying shares in the company or offering investment for a return in some form. A valuation will be required for which the Business Plan is a key reference along with the trading record over the last three years. 

Exit Negotiations 

At some point in the progression of a business the shareholders and directors may plan to exit by public flotation, merger or management buy out (MBO). The Business Plan and last three years of trading accounts will be essential references. 

  A Vision is Needed for Growth Acceleration 

The first step is for the board to have made the decision to accelerate growth. They’ll need to define what accelerated growth looks like to them. 
 
They will also need to decide whether a specified growth rate is to be achieved entirely organically or assisted by mergers or acquisitions. 
Further considerations include what they feel is required to drive growth and how it will be achieved. Thinking along these lines will set a reference framework for a meeting, or meetings, to do detail work on fleshing out the vision. 
 
Who should participate in formulating the vision? Clearly the top managers and directors should be involved aided by customer focused managers who understand market needs over the planning period. 
 
An external moderator (for example a Mentor already familiar with the business) can be very effective in ensuring that all present have an opportunity to contribute and an accurate and representative record is made. 

  A Winning Market Strategy 

The key question when contemplating an ambitious revenue profile is “How can we deliver?” A credible Business Plan which fulfils its purposes must address the following components on a factual and convincing basis: 

THE MARKET OPPORTUNITY 

How big is the market for our products and services? Who are the competitors and what market share do they have compared with us? What are the market trends over the planning timescale and how can we be more competitive? 

MARGET SEGMENTATION 

The foundation of strategic marketing! The segments being traded in or targeted must be defined by customer need. Your products and services must address these needs precisely. What’s the value and growth rate of these segments and what share are you achieving and/or planning?? 

DIFFERENTIATORS 

How competitive are you in each segment in terms of USPs, killer benefits and value for money? Avoid trading on price and preserve margins. 

POSITIONING  

Your business must be distinguished for its particular advantages over competitors. In other words offering a quality, value for money and level of service which can be seen by customers as positively different. 
The foregoing is the foundation of a winning market strategy, in other words a strategy to accelerate growth. 

  Organisation and Financial Structure for Growth 

Delivering the revenues is crucial as is the business model which fulfils them. 

Organising for Performance: 

The most revenue effective structure is modular in which each business unit represents a coherent skill set and product and/or services addressing a line of business, market segment or customer focus. 
 
Each business unit in the organisation will have a director or senior manager at the top with a reporting team below. All will be positioned in a job and remuneration table, have job specs and be performance appraised bi annually. 

Organising for Profit: 

The most profit effective structure is also modular and a mirror image of the organisation structure. Thus, each business unit in the structure must have financial significance, for example as a profit centre or cost centre. 
 
For the purpose of performance measurement, i.e. budget versus actual with variances, will be reported monthly at business unit level. 
 
Get the organisational and financial structure right and you have a platform for achieving accelerating growth. 

  Energising and Maintaining a Motivated Workforce 

Each and every member of the workforce plays his or her part in achieving the targets set out in the Business Plan. Inclusivity is important and employees must understand that their career advances in relation to how well they contribute to achieving relevant targets in the Business Plan. 
 
There are four principle ways to energise and motivate the workforce: 
Keep Staff Informed: 
Hold staff meetings frequently, say quarterly, and present the Business Plan whenever updated, explain how the company is doing in terms of performance (down to business unit level), crediting outstanding contributions, making positive announcements and giving notice of future planned developments. 
Talk to Staff Informally and Frequently: 
Staff meetings achieve some engagement which is beneficial in most cases. More engagement then energisation happens when senior managers and directors take time out to take an interest in individuals, seek their opinions and give credit as appropriate. 
Career Development: 
Bi annual appraisals are a vehicle to discuss performance and aspirations. In a company culture where all understand that career advancement is merit driven (no nepotism) it will be appreciated that appraisals will normally be a positive experience. 
Salaries and Bonuses: 
Provided the above three methods are successful, a motivated workforce is not, and should not, be all about money. This fourth component is about fairness and openness in how people are rewarded for their services. The main reference is a formal and published salary and payments grading table. All must know their grade and job title along with having a job spec. In parallel should be a schedule of commission, productivity and KPI payments as they apply to specific jobs and grades. 
Do these things well and you’ll have a loyal, productive and motivated workforce. Bear in mind it’s expensive to replace leavers who go because you’ve not managed them well! 

  3 – 5 Year Financial Projection 

So we’ve got a vision, a winning marketing strategy, a platform for delivering revenue and profit growth, and, a motivated workforce, what about the numbers? In other words you have the engine, how fast do you want it to go? 
The first port of call is to ask the business unit managers. They are closest to their markets and will seek the opinions of heads of marketing and sales. They will of course be mindful of the vision already set out and approved by the board. They will also need to liaise with the accounts team for central overheads, marketing and sales costs and non staff costs. The end deliverable will be a business unit budget P&L. 
 
Add all the business unit budgets together plus central overheads and you have a draft company budget. This step by step approach spreads the workload and responsibility for budgeting and delivering the budgeted numbers. This way nobody has targets imposed, instead the numbers are all the more likely to be achievable. That’s not to say that some negotiation will not be required along the way to final approval by the board! 
 
Repeat in summarised form for years 2 to 3 or 5. 

  Respect for the Board 

Providing the foregoing measures are taken seriously and are working well it should follow that the board is credited by the workforce for its leadership. Mutual respect between the two is a sign that all is well. An “us and them” feeling is a distinctly opposite sign! 
 
Board members should also be known and respected by customers and be an agent for customer loyalty. 
 
The board should be seen to have regular board meetings at which strategic and tactical decisions are taken. Evidence of their output will be promulgated to the managers and staff concerned individually or in staff meetings. 
 
The board is the ultimate guardian of the Business Plan. Agendas should lean towards strategic debate and the “Big Picture”. Anticipation of the effects of high growth, providing adequate investment in resources and capacity, maintenance of competitive advantage and future direction need regular consideration. 
 
If you are looking to achieve high profitable growth objectives, contact us and request a free business plan template  
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