Strategic Plan to Communicating Business

One of the biggest things bankers have difficulties with when evaluating new clients is their ability to clearly and accurately communicate where their business is going and what their plan is to get it there. Understanding where you are and where you are headed and how a banking relationship is going to fit into that plan helps bankers decide the best ways they can partner with you.

When creating a plan that you are going to communicate to a potential lender, there are three things that you need to focus on:

The Strategic Plan

A good strategic plan for your business contains several key components:

Vision for the Future
Who the Key Players Are
Culture and Core Values
Operational and Administrative Requirements
Goals for Revenue and Direct Expenses (Gross Margins)
Goals for Overhead and Headcount
Contingency Plans

Vision for the Future

When you went through the steps of understanding how to communicate where your business is going, you developed a vision of where you want to be, or what you want the future of your business to look like.

This is what you want the strategic plan to achieve. Not having this clear goal is like running a race without a finish line or playing a game without rules and boundaries.

Now that you have an understanding of where you currently are, have your vision for the future, can communicate it, and have at least an idea on how to get there, you need to start working on the details of the plan.

Who the Key Players Are

Any strategic business plan has to be executed. Ultimately, everyone in your business will contribute in some way, but there are certain key players that are going to drive certain aspects of the plan.

So who are these key players and what functions are they going to perform? The answer really depends on the plan.

For example, your strategic plan includes using your competitive advantages to increase gross margins and use those proceeds to improve customer service with the goal of increasing market share.

The first set of key players in this example would be individuals who are most responsible for managing your direct costs, or the costs directly associated with generating your revenue. These individuals could be dealmakers. Or they could be sourcing or procurement managers or specialists. They could also be in charge of manufacturing processes or manage transportation and logistics.

In this example, you would also have key players that manage and perform customer service, since that is the ultimate goal of increasing margins. Additional key players could be technical support staff that give your key players in customer service the ability to perform their tasks more effectively.

Regardless of the plan, you have to identify specifically who, or what positions in the company in case of turnover, is going to be responsible for the plan’s success.

Once you identify the who, you need to identify the what. What do these key players need to do and what do they need to be focused on in order to achieve your goals?

These can be broadly defined as in “we need to use our negotiating skills to reduce raw material costs,” or they can be very specific such as “we need to strive to negotiate five percent better prices on these specific raw materials.” How specific depends on how technical the plan needs to be in order to be successful.

Culture & Core Values

Every plan must incorporate company culture and core values. These are the things that separate your business from others. They are what differentiates the way you provide your products or services from your industry peers.

As you devise your strategic plan, consider the things that you need to do to achieve your goals, then think about how your culture and core values allow you to do those things in a way that differentiate you from your competition.

Operational & Administrative Requirements

If you are making improvements to your business to achieve new goals, there will inevitably be evolutions in the operational and administrative functions of your business.

If you are expanding to new markets, you have to be able to manage increased levels of billing and collections in those markets. You will also need to expand or evolve customer service capabilities.

If your strategic plan involves expanding product lines, you will need to also expand manufacturing and procurement capabilities to support the expansion. This is where you start getting into more of the technical aspects of your plan.

In order to achieve your goals, when do you need to evolve how you do business and what do those evolutions need to look like?

Goals for Revenue & Direct Expenses (Gross Margins)

Revenue growth is a goal of pretty much any strategic plan. However, there are two critical things you need to focus on when determining revenue goals.

Defining Direct Expenses and Gross Margins: The key to effectively managing revenue growth is having a thorough understanding of what expenses are directly related to bringing in that revenue.

For example, if you are a manufacturing company, your direct expenses are any costs directly associated with manufacturing such as raw materials and labor. Direct expenses are not overhead. They fluctuate with your revenue.

Properly managing direct expenses results in gross margins that are enough to cover overhead and leave an adequate amount of money in the business.

As you create a strategic plan, you must understand acceptable levels of direct expenses and gross margins so you have the cash to maintain your growth and meet your goals.

Cash Flow: Understanding revenue and direct expenses is just step one. Now you need to understand how cash flows through the transactions your business conducts.

When do you actually collect the revenue you recognize?
When do you actually incur your direct expenses and when does that cash go out?
What is the spread between inflows and outflows?
How can you compensate for negative cash flow situations?

All of these things must be considered.

Goals for Overhead & Headcount

Once you incorporate the management of gross margins into your plan, then you need to consider things like overhead and employee headcount.

When will you need to expand overhead to continue operating effectively?
How many more people will you need to hire, what will they need to do, and at what point do you need to look at bringing them in?
At what point will you need to purchase more equipment or look at expanding facilities?
Will you need to add new locations to expand to new markets and when do you anticipate that being necessary?

When formulating this portion of your strategic business plan, think about both your anticipated operational and administrative requirements and your goals for revenue and direct expenses.

The answers to these questions depend on when the physical need will arise and when the business will have the capability to make and sustain the necessary expenditures.

Contingency Plans

Every plan needs a contingency. What if there is an issue because of an unforeseen event and you cannot get a key raw material on time to fulfill customer orders?

You need to understand how this situation affects your overall plan and have some ideas on what you can do to mitigate the risks it creates.

Maybe part of your plan is to secure alternative sourcing, or maybe there are some substitutes that you can already have identified.

Another option is when you get an indication a raw material will become scarce, you stock more of it in inventory. However, this can adversely affect cash flow and gross margins by requiring a greater up-front expenditure, more warehouse space, and extra handling and storage costs. The lower gross margins may lengthen the amount of time it takes to reach other goals or make existing expenditures difficult.

If you have a good contingency plan in place and can understand and mitigate the issues, it helps you keep your overall strategic plan on track.

Have Questions? We Have Answers

Understanding where your business is going, having a good strategic plan, and being able to effectively communicate your needs, vision, and plan to your banker are a good foundation for building a good banking relationship that will help your business grow.

By lending your business money or giving you short-term access to working capital, your banker is in effect investing in your business.

Treating your banking relationships with this perspective is the first step towards being able to access the capital you need to maintain and grow your business in the future.

Are you having difficulty developing your strategic business plan? Let us help! Contact us now.

Part 2: Communicating Your Business’s Vision Through Strategic Planning