As the year is coming to a close, many business owners are planning for 2021. If not for the whole year, at least for the first quarter of the new year. How do you plan for your business, especially when we have had such an odd year? Myself, I rely on my advisor to help guide me through because that has never been my strength. In the past, I’ve set goals, but not really tied them to metrics or plans on how to get there. You know, that goal that sounds like this: This year we made 1 M widgets so next year I want to make 2 M widgets.
It’s a goal – just not a very well thought out goal. Working with an advisor has really helped me make a solid and realistic plan.
Starting with your baseline of prior performance is exactly what you should do. I got that part right! As our recent podcast guest, Krishna Mohan, President of Genius Visionary, asserted, you have to start with the proper baseline. He suggests that you start with 2019 or 2018 because 2020 has been such an anomaly.
Excerpt from the Podcast
Question: This is the time of year, the beginning of fall and fourth quarter, where business owners need to really start thinking about their goals. How do you suggest that business owners structure their goals? What’s their starting point?
Krishna: Yeah, I think the good starting point is that they have to refer to 2018 and 2019 instead of 2020 as the baseline. The reason I say that is because 2020 is slightly different. It’s an anomaly, you know; it’s different, right? So you need to get that baseline right. You know, we have this rough fake nine months already this year, hopefully we can close this year better, nothing significant is going to happen in the last quarter. So take your previous two years as the baseline. And while you planned something for 2020, a lot of these things did not happen. Now this became our new reality, it’s better to accept that. So starting from this new baseline, plan your financial numbers. Once you have those numbers locked down, then we can go back to the action plans in terms of what are we going to do about people, operations, and your tactical day-to-day actions. This will make you prepared for the things that you know, that you want to do in the upcoming year. Your next step in the remaining 2020, come up with a detailed, actionable plan.
Listen to full podcast here!
This is where my advisor kicks in. Do you remember those actionable goals Krishna mentioned? Those goals are obtained through forecasting, again, something that has never been a strength with me. I believe that most SBO struggle with that. They are great visionaries or exceptional operations leaders or incredible masterminds, but don’t have the necessary skills to put together the forecast, the plan that goes with achieving those financial goals, or understanding of the metrics needed to measure progress. Often, those businesses are too small to hire a Chief Financial Officer or a Fractional CFO.
The simplest method to get all of this tied up nicely in a format that you can rollout in your company and to your team are these 4 steps.
- Start with the end goal. In the above example it is 2 M widgets, and we know that is an increase of 1 M widgets, essential doubling production.
- Then, breakdown into quarterly or monthly increments what needs to happen to bring in the orders for 1 M more widgets or 250,000 more per quarter or 83,333 more per month. Do you need a new sales rep or tighter goals on current reps? Maybe there is a new vertical that you can easily sell the extra 1 M to that doesn’t require you to increase your staff.
- Plan for the increased capacity. Do you need to hire more production workers, managers, or do you have the capacity to facilitate the proposed increase? Do you offer your current work force incentives or pay increases? These costs need to be planned into your financial forecast. In our widgets example, let’s assume production was at 75% capacity with the current 1 M widgets. To increase capacity for our proposed 2 M, your current operations will only accommodate 25% more or 250,000 widgets. What needs to happen to get to your goal? There are many factors that may come in play here: staffing, equipment, maintenance, size of facility, raw material availability, etc…
- Now you are ready for what I call the “To Do” list. This is where you plan the steps on how to achieve the goals set by month or quarter in step 2. These steps here may be related to the hiring and training process or acquisition of new equipment. Hint, often your team can give you valuable ideas. Be careful not to shoot down those ideas even if they sound ludicrous. Our jobs as leaders and managers are to cultivate the team into thinking strategically. Stifling someone’s ideas may cause them to hesitate before they provide their thoughts and ideas in the future.
Now you’re ready to go into 2021 with a more complete plan. I will also suggest that it takes some tinkering to get your forecast and goals to where you feel comfortable. With the widget example, it is possible that doubling production may not be a reality without new space. That may prohibit that goal in the short-term if funding is not available. A business owner may decide to increase or decrease their end goal based on the likelihood of achieving the smaller monthly and quarterly goals based on how realistic they are to achieve.
From my own experience, I’ve had to tinker with forecasts, marketing steams, pay incentives and increases, as well as new positions in the company. I feel like I’m now at a comfortable place with a realistic plan to meet my goals. I’ve created a BHAG for this year.
Happy Goal Setting! I’d love to hear about yours.