Time to Act
Charlie Goodrich

The annual business planning process is rarely welcome, often painful and frequently ineffective.  But it doesn't have to be that way. Our December newsletter shares a simple, six-step process for making your annual planning easier and more productive.

Your comments are always welcome. Just click "reply" to send them to me.

Happy holidays,

Charlie Goodrich

Founder and Principal

Goodrich & Associates
December 2012 Vol. 1 No. 4
In this issue...
Six Steps for Taking the Pain Out of Your Annual Planning Process
Heard on the Street
About Us
Goodrich & Associates
[email protected]
Six Steps for Taking the Pain Out of Your Annual Planning Process
Late December is the time of year when most of us are thinking about wrapping up gifts for friends and family. It's also the time when businesses get serious about wrapping up their annual plans.

Ugh. The annual planning process is rarely a welcome event. It takes a long time. It ties up many people and resources. It involves meetings, negotiations and lots and lots of numbers.

But it's important.

Your annual plan sets performance objectives for the coming year. It allocates critical resources such as people, capital and major expenses needed to achieve those objectives. It provides a tool for making vital decisions and for holding people accountable in the months ahead.

The good news is, it need not be so painful or time-consuming. After all, at a high level, it's really nothing more than an exercise in setting objectives and making resource allocation decisions.

Here's my simple approach, with some guidelines on what to watch out for along the way:
  1. Know what the business must deliver.

    Step one in the process involves knowing what it will take in the coming year to be competitive with peers and to achieve multi-year goals. These goals are typically expressed in terms of corporate financial metrics such as EPS growth, return on equity and so forth, and perhaps also major operational or progress benchmarks.

    Make sure that there is agreement with the board, or owners, on these goals - it's important to start the next step knowing where the plan should end up.
  1. Make tentative major decisions.

    Make tentative major resource allocation decisions such as significant capital projects, total capital expenditures, advertising dollars, etc. Make tentative major balance sheet decisions such as dividend payout ratios, borrowing levels, stock buy backs, etc. Set tentative macro operating targets such as division operating income or, for simpler businesses, sales volumes, gross profit targets and operating expense levels.

    You can't make these types of decisions unless you know and understand the set of opportunities you intend to pursue. Make sure a process such as a strategic plan or perhaps a capital plan feeds into these decisions.

    The trick here is in balancing all these decisions so that you can generate competitive performance the following year. After all, that is what management is paid to do.

    Keep in mind as well that setting business unit goals should be a top down process, where goals are given to business units or departments. In practice, this means that senior management needs to understand the key financial and operating drivers of the business units or departments, so that it can set realistic objectives. Beware of "bottoms up" processes which take the place of real understanding at the top (when I began my career, this kind of "managing up" was what we called "sandbagging").

    Here as well, make sure the board or owners are updated regarding these tentative macro plans.
  1. Develop detailed plans.

    Charge business units or departments with developing detailed execution plans and financial projections to meet the goals they have been given and that reflect the major resource allocation decisions that affect them. Lower level resource allocation decisions are made at this point as well.

    Because the process is top down, these detailed plans will be completed after the major resource decisions that affect the business unit or department have been made. Time is not wasted flushing out a detailed plan whose major assumptions keep changing.
  1. Have senior management review detailed plans with business units and departments.

    The purpose of this step is for senior management to make sure that plans laid out in step three are feasible and will meet targets.

    This is a time for candid discussions, not "dog and pony" shows. Meetings with line managers with no or limited staff will be more productive and will easily reveal if they have done the necessary details. (Early in my career, I noticed our CEO flipping pencils in the air during the dog and pony shows. When he started getting them to stick in the ceiling I knew he found these presentations as useless as I assumed they were.)
  1. Put on the final wrapping.

    Tweak the plan for minor year-end changes in business performance, market conditions and competitors' performance. Update the board or owners and feed plan details into the company systems that track performance against plan.

    More often than not, when major "true ups" are required at the end of the process (usually at the beginning of the new year), it's because senior management did not have a good handle on the performance of a business unit or department, or of a competitor whose results they must match.
  1. Track, monitor and review progress against the plan.

    "The plan" is only the beginning. Going forward, and throughout the year, everyone needs to be held accountable for results vis a vis expectations.

    It's worth noting that family-owned businesses often have a difficult time with this last step. Perhaps because it's harder to only be accountable for themselves and/or because family dynamics get in the way. Whatever the reasons, consider outside help for some added perspective, whether that's a board of advisors, an external consultant, or both.
The development of your company's annual plan is simple to describe but often hard to implement. Either way, it's a critical step in your business's ongoing success. Keep these guidelines in mind as you get things wrapped up in the final weeks of the year.

Happy holidays and all the best with your other wrapping too!

Heard on the Street

Earlier this month, Randall S. Krosner, a former Governor of the Federal Reserve and current professor of economics at the University of Chicago Booth School of Business, delivered a forecast presentation for the coming year. 
While not quite as bleak as the Mayan's forecast, it does not call for robust growth either.

About Us
Goodrich & Associates is a management consulting firm. We specialize in helping our business clients solve urgent financial problems. Our Founder and Principal, Charlie Goodrich, holds an MBA in Finance from the University of Chicago and a Bachelor's Degree in Economics from the University of Virginia, and has over 30 years experience in this area.

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