In the past year articles my partners and I have written frequently addressed business planning. As business consultants, we are firm believers that a solid business plan will improve businesses’ chances for success.
Establishing a financial revenue and expense plan by month is a critical step that good business planners perform annually with a longer term plan covering three to five years that is not as detailed and requires more estimation.
In the long-term plan, and to some extent even the upcoming year plan, thoughts and strategic planning need to take into account global aspects of a business and the industry it is in.
One particular aspect to focus on is the capacity of your business’s systems and personnel. We have seen successful entrepreneurs in a business with several years of substantial revenue growth, number of employees, customers, etc. Concentration of the business owners and management is typically focused on revenue growth, customers, and getting the job done.
Hence, great performance and financial results…but a problem may be lurking.
Management information systems, internal control systems, and personnel must grow with an expanding business. What was once a business with operations and volume that the owner could keep track of in their head may now be a business that the smartest person around could not possibly manage in such manner.
Without proper systems and personnel, matters are overlooked or forgotten, critical reports are not prepared or are so late they have lost their usefulness, management does not know where to focus their attention, etc. Stress builds and employee performance suffers.
As a business grows, key systems and personnel must growth with it. Usually this growth is in steps. Personnel and systems presently in place may have been adequate for a number of years and covered a wide range of volume in revenue and operations. There is not an absolute point at which the systems and personnel become inadequate, rather it is a slow process and that is why inadequacies are often not noticed until either a crisis or investigation of deteriorating performance of the company.
Examples of a step increase: A financial system dependent on the owner and a controller may now require a chief financial officer; a purchasing operation that relied on the owner and operations personnel may now warrant a purchasing manager; plant operations that relied on the owner and plant foreman may now require a plant manager; maybe a human resources officer is now needed; additional equipment; expansion of office and production space; and additional capital.
Updating systems and software, expansion of facilities, adding executive personnel, etc. usually are significant undertakings, one of the reasons a long-term business plan should be prepared.
Ken Meissner, CPA is a partner at Alegria & Company and specializes in business and personal income tax and is a Certified Specialist in Estate Planning. He can be reached at email@example.com