Please have an Annual Plan!

So, I beat people up every year about having a Business Plan. Business Plans are great as they set a longer term direction for a company. Even if you have one, you still need to make a shorter term version of it - an Annual Plan. Think of the Annual Plan as one of the stepping stones in the completion of the journey that your Business Plan sets you on.

So, what are the elements of an Annual Plan? They consist of 3 major sections for a Small Business - Revenue, Budget, and Initiatives. The easiest of these to understand is the Revenue line. As I have made my case in the recent series on Time Management, one should plan on Revenue Growth of at least 10% per year (preferably 15%). This is to compensate for inflation that will naturally occur. There are alternatives to growing the revenue that quickly. The first of these is to improve the profitability of the products and services. The simplest way to understand the cost of goods sold (COGS) is to think of this as the variable cost that the business has in making the products and services. This includes both labor and materials so some part of employee expenses will be in there. This can be a difficult line for some businesses as people can spend only part of their time on production. The reality is that the most important thing is that you are consistent in how you deal with it.

The second way of limiting your need to grow is in your Budget. I know that many small businesses have trouble with this, but there should be records of what was spent in the year to date and that can be extrapolated to full year. This is a great starting point for a budget. The one thing that needs to be clear is that costs are likely to rise year over year. One place I get an argument is on rent. Many businesses have a multi-year rental agreement for their property. The thing is that unless you plan for the rental increase when the new contract comes about you are likely to be flabbergasted at the increase. By planning the rent increase into the budget, you should be able to create margin in your plan for the rent increase later. In any case, if you can limit your Budget increases it can lower your need to improve Revenue. The challenge with that is that it is difficult to improve Revenue and not give raises or spend money on Marketing.

Finally, there are Initiatives. These are changes in your business that you are going to make to help you grow and meet your Business Plan goals. The first two sections of the plan should be done as if there were no changes like we will keep doing things as they are. Now we layer in these changes. Is it a new Product or Service? Are you trying a new Marketing Channel? Are you opening up a new Territory? Whatever it is, you need to plan for expenses and results dedicated to these initiatives. This will help you judge the results of the initiatives when you are done with the year.

So, I hope that simple outline helps you create an Annual Plan that you can use to operate your Business!


Jim Sackman
Focal Point Business Coaching
Business Coaching, Executive Training, Sales Training, Marketing

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