Planning for profit in 2021

Well, that was quite a year!

The turn of the year is always a time of reflection. A chance to think about the good, the bad and the ugly of the last year, how we learn from that and plan for a better year ahead.

Survival has been the primary focus of 2020 for many business owners. My heart goes out to so many small business owners who have really struggled and lost their livelihoods. Unfortunately the pain is not over for many of us.

While thankfully the furlough scheme has been extended again until the end of April, the economic cost to the UK will be coming home to roost this year. Watch out for the major tax grab which can only be a matter of time. At the Business Growth Institute we and the clients we work with are preparing as well as we possibly can for what might come next. For us that always starts with a Plan For Profit.

As business owners, we have a lot of issues and problems to deal with in our business. The reason we start with a Plan For Profit is that, no matter what issues or problems exist, most of them can be solved if the business generates strong profits and stable cash flow.

It might surprise you but that’s not where every business owner starts.

Many businesses, if they do a plan for the next year, start with what they did last year (as per the above diagram). They factor in what they think they can grow by and go for that. Not only is the final point an algorithm rather than a vision, we believe that in today’s world where things change so quickly, this approach whilst on the surface seeming to be safe and prudent, is actually very high risk. If this year has taught us anything, it is that assumptions and business models we used to rely on, cannot be relied upon in the future.

Our model is quite different. It’s what we call Pathfinding.

In this approach we take a good look at:

1. Where are we today?
2. Where do we want to be in say 3 years time?
3. How do we reverse engineer the business to get there

The different outcomes you get with those different approaches can be as different as night and day. They literally can change your future and that of your business.

Okay you say, “I see how that might be the case, but tell me a bit more about how you do that?”

1. Where are we today?

Start with a review of your business as it currently stands. A good practical plan starts with a no holds barred look at where you’re at now and what is holding you back.

These can be very difficult conversations that are often easier said than done, but try and talk about Issues Not Personalities. Try, Fail, Adjust, is much more helpful than Try, Fail, Blame. Bringing in an outside expert to run the process can really help if the issues are serious and people polarised.

It is critically important when you have an ambitious vision to get your people aligned around where you are starting from and the direction of travel. If you want to get to London, the direction you go differs greatly depending on whether you start from Bristol or Birmingham.

If you’d like some FREE help with this we’ve developed a Profit And Cashflow Scorecard which gives you expert guidance to help you audit your financial starting position.

This will take you through the key elements of profit and cashflow generation in your business, and give you a free analysis of your business performance. Given it comes from an independent source with no axe to grind that can really help bring objectivity to the conversations. Rather than just help you analyse the problem, you’ll also get some detailed actions you can take based on the scores of your specific business, to make significant improvements in your profit and cashflow performance.

In addition chunking up from that, we have a Business Diagnostic Model we call The Rocket© which might give you some further structure around which to organise your thinking.

We run a detailed diagnostic process with clients on each area of the Rocket, but as a starting place you can do yourselves, spend an hour with your management team grading your business 1 to 5 in each component area. This will give you good insight into what’s working well and where things need further development.

2. Where do we want to be in say 3 years time?

The age of getting consultants to write a 5 year business plan for you which no-one ever really reads and certainly doesn't implement is long gone. Shame, we used to make good money from that!

The world now moves so fast, a business model can be out of date in weeks, let alone years. Best practice nowadays is to have high level plans on 1-2 pages with execution plans for the next year and the most detail in the next quarter. We’ll talk in another blog about how to capture this in a One Page Plan but for now have a think about your:

1. Vision - What you want to look like in 3 years’ time
2. Business Value - What you want your business to be worth?
3. Profit - How much profit you’d need to be making to drive that business value?
4. Cash - How much cash you’d like to have in the bank?

3. How do we reverse engineer the business to get there?

We then flesh out with clients the plan to achieve those goals into 12 quarters with the first year in more detail.

We’ve developed another FREE tool called the Profit Calculator. This helps a business look at their profitability in the last 12m period, and helps them target a best, worst and expected profit for the next 12m. It’ll show you what choices you have in your fixed costs and margins to generate a given profit and what that means for your annual and monthly revenue targets.

If you’re serious enough to take the time to do the Profit And Cashflow Scorecard, we’ll send you the Profit Calculator as a FREE gift. 

One more thing before we go - get buy-in

Getting people to change is an art form in itself. Again a blog topic for another day. Suffice to say for now is that people are far more likely to implement change to solve problems, when they have been involved in diagnosing the issue. The more you get your people involved in the process above, the more likely they will be committed to doing what’s needed to take the action necessary.

We hope the above helps you plan for a better 2021. We all certainly need it! We wish you all the best in those endeavours and please do reach out to us if you’d like a quick chat.

Why we give our expertise and tools away.

Please know that our expertise has been won through more years of blood sweat and tears than we care to remember. It is not lightly given away. Yes we of course do this to begin a relationship with prospective clients, but we also do it in the desire to help many more clients than we might ever work with. We do this because we love business and those that take the risk and stress to set up their own business which provides the products, services and jobs we all rely on, not to mention the wealth which pays for our public services. If we can help you develop strong profitability and stable cash flow and sleep a bit better at night, we’re delighted to do so. 

Having said that we would ask that in the spirit of generosity with which they are given, you would protect the value we have given you and not send the tools on to others. We’d be more than happy for others to use them but would be glad if you could point them to our links. If you have a number of people who you think could usefully benefit we’d love to have a chat about some Partner Schemes we’re developing.

To your success

Shaun