We have just started Q4 of 2017. That means it is time to start looking forward to 2018. In my view, that means the development of an Annual Plan. This is somewhat different than a Business Plan because it has a lot of tactical details about how 2018 will be executed. But we will come to the contents of a plan in another post. Today, I want to talk about why we have one.
The first reason I want to give you is what I call "The 7% Problem". What is that? It is the Operating Expense Inflation that businesses go through year after year. When I used to measure it at Advanced Fibre Communications it was 7%. It is the answer to the following question: If I do nothing, how much Operating Expense will I have next year? I found that costs went up about 7% year over year.
Now, I am quite sure that you have a different number. But I bet it is not that far off from 7%. Even in my own business today I saw a 20% rental increase on my office year over year. So, this can happen to the smallest of businesses. When you have employees, remember you have to give people raises. Raises impact Worker's Compensation and other Insurance costs. In any case, you need to expect your costs to increase over time.
"The 7% Problem" is all about what you are going to do about it. Are you going to increase Revenue? If so, how and how much? How about Operating Expenses? Can you reduce them? How about Costs of Goods Sold? Is there a way of lowering them? In any case, all of these things require Change to your Business and the way it operates.
That leads to the question: If I am making a Change, how do I know it is working? And that is the point of the Annual Plan. You take last year's business and you overlay it with specifics about the changes that you are going to make. Most importantly, you build metrics around these changes. This becomes part of your dashboard for next year. You can review your progress against the metrics and figure out how to make them work or do something else. You need to make these plans living documents to use them to help your business.
Have a great day!
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