Don’t forget the big picture
Business owners must focus on surviving the present while not losing sight of the future
Monday, January 16 2012 || Business Link || BY Auckland Chamber of Commerce
So it’s no wonder that accurate long-term business planning is difficult.
Daniel Hunt, Director of Tax and Advisory firm Daniel Hunt and Associates and Training Facilitator with the Auckland Chamber of Commerce, says that while stagnant business plans and forecasts may be a thing of the
past, tracking against strategic goals and objectives certainly isn’t.
“Gone are the days where you can write a business plan and it’s going to last the next three, four or five years,” Hunt says. “You have to keep coming back, revisiting it, looking at your strategy, what you set up to
do and whether or not you’re achieving it.”
Hunt says there is a move towards short term planning that still focuses on long-term strategic goals. He encourages business owners to revisit business plans and budgets on a yearly, quarterly or even monthly basis.
“Obviously it’s a revolving tool - it’s not static or constant and continuously needs updating.”
It’s not solely about the numbers either, with an increased emphasis being put on non-financial performance measures such as market share and other value drivers. He says traditional forms of budgeting don’t
allow for flexibility or consider the drivers behind revenue and expenses. “Before, a lot of emphasis was on financial performance measures - how are we going to reach these profit levels, how much are we going to
spend, etc.”
While business plans should mainly focus on the future, it’s also important to reflect on the past, he says. “To look back and say “’what have you done, how far have you got and why have you got to this stage. If you haven’t done so well, why not; if you have, why?’”
Most importantly, Hunt says a business plan gives direction. “A lot of people start businesses and then go off on all sorts of tangents and lose sight of what they’re doing and where they’re going. It just comes back
to that big picture; what are you trying to achieve and how are you going to achieve that - it needs to be spelled out quite clearly in the business plan.”
While the global financial crisis has been tough on business, Hunt says it’s not all bad. “What has happened with the global economy in recent years has helped businesses in many ways. As strange as that sounds, it’s encouraged them to take a good look at their resources, what they have in their business and what they really need to run their businesses.”
Alternate strategies
Staples Rodway Head of Business Advisory and Assurance Unit, David Searle, agrees that long-term plans are becoming less reliable. He says generally the longer you plan out the less accurate you will be. “You should have a reasonable idea of where you’re going to be in a year, but in three years you’re making
a bit of a guess and if you go out longer than that it’s bit of a stab in dark,” Searle says. “Five years is a long time, we don’t know what changes there will be - economic, industry or market. With the level of uncertainty that we’ve got and things moving so fast like the currency and commodity prices it makes looking forward extremely difficult.”
Rolling and flexible forecasts are what many businesses are now using to factor in different scenarios like changes in sales prices, volumes and exchange rates.
“Forecasting can never be static,” Searle says. “[In October] we moved from roughly 86 cents to 76 cents in two weeks against the US dollar and then bounced back up again. If you’re buying or selling to the US and you’re not hedged, that has a massive effect on your business.” Searle also says that many businesses are using business planning tools and forecasting software modules in order to streamline their forecasting.
