tracking your business's progress.
Two questions at the top of almost every business owner's mind are: "How do I know if my
business is on track? Is there a simple mechanism that lets me know if I'm doing okay?" It
probably is no surprise that, until recently, even some very large companies used a "cigar box"
approach to tracking business results. That is, every dollar that comes in to the business goes
into the cigar box. All the expenses are paid from the cigar box. As long as the box is not empty
and there is adequate money left over for the business owner, everything is just fine.
There are better ways to stay on top of your business performance. A business plan can provide
the foundation for a tracking system that lets you evaluate your business progress. This tracking
function gives you, as the business owner, real-time feedback regarding operations. Deviations
between actual and planned results provide clues that you can use to tweak or fine-tune certain
elements of the plan. For example, if your plan projects that the business will be the successful
bidder on five jobs in the first quarter of the year, and on April 1 you've only gotten two jobs, you
can take steps to adjust. But you need to know that there is a need to adjust. That is why a good
business plan has definitive targets associated with a timetable for achievement. It is a lot easier
to know how you're doing if you started out with solid expectations about how your business will
go.
Most business plans quantify, in one way or another, the sales levels that must be reached for
the business to be profitable. Your plan might call for annual sales of $1,000,000, or quarterly
sales of 1,200 units, or provide some other objective measure of success. If you wait until the
end of the year to see if the target has been reached, you won't have any opportunity to react to
anything that alters your plans. The only way to know for certain whether those goals are being
met is to track, throughout the year, actual performance against predicted performance.
You might also choose to make some decisions to take advantage of opportunities that may
arise. Without meaningful data and milestones against which to measure that data's significance,
such mid-course alterations are difficult to make. For example, if sales consistently outperform
your projections, you might amend the plan to set more aggressive goals. On the other hand,
you might want to take certain steps to take advantage of the additional cash flow, such as
retiring debt early, investing in new business development, etc. But you might also adopt a wait
and see attitude if, for example, you believe that the total sales volume won't exceed the plan's
estimates and that the higher level of sales you are experiencing merely reflects a seasonal
timing differential.
Adjusting Operations
Sometimes, no matter how well you try to plan, things just don't work out the way you expected. In
some cases, there was something wrong with the assumptions or projections that were made
when you first created the plan. In that case, the correct response is to revise the plan to better
reflect your actual experience. When you correct your assumptions or projections, you can
establish new, more realistic goals for your business.
Unfortunately, sometimes the plan is sound, and the failure to meet targets is a result of
problems in your business operations. There can be any number of reasons for this, and your
plan can help you figure out what's not right. When you create the plan, you'll try to consider all
the factors that might help or hurt your business. By doing so, you'll already have a list of
potential problem areas. You can review the plan and try to identify exactly where your
operations are deviating from what you wanted. Did you overestimate the demand for your
product or service? Are sales people not working out the way you had hoped? Are there
problems with back office functions, such as billing? In this capacity, a business plan makes your
troubleshooting efforts easier.
