Planning & Strategy

“Those who plan do better than those who do not plan even though they rarely stick to their plan.” Winston Churchill


“Begin with the end in mind” Steven Covey – The Seven Habits of Highly Effective People strategic planning

When buying or raising a business it is important to determine the aim of the business and your exit strategy.  This will then influence how the business is structured and run.

1. Saleable Asset.  If the aim is to sell the business, this aim should be further refined to a specific date and a sale price.  The greater clarity with any goal – the greater the probability for success.  A couple of considerations for preparing a business for sale (in addition to financial considerations) are succession planning and systems (these are further addressed in Operations) which make the business more self sufficient and therefore more attractive to potential purchasers.

2. Income Stream.   Whilst this may not be the original aim for a business, many people use it as an income stream taking out most of the profits rather than reinvesting the profits to increase business equity.  You need to be aware that this will generally reduce the amount a business will sell for.  Although this compromise appears self evident, human nature leads us to want both a generous income stream and a high sale price for our business – this is rarely the case.  Using your company primarily as an income stream is also known as a “Lifestyle Company”.

3. Job – Can the organisation function on an ongoing basis without you?  If the answer is no, you have a job not a business.  Some people may not wish to manage staff and are happy to be paid only when they work; they may be structured as a limited liability company, partnership or sole trader for tax and/or administrative purposes, however, this is fundamentally a job not a business.

4. Public Company (IPO).  The procedures and requirements for listing a company on the Australian Stock Exchange (ASX) are contained on the ASX website.

Exit Strategy

“The best time to start planning your exit strategy is yesterday” – anon

The voluntary means of exiting a business include:

A.  Sale – External acquisition with or without a transition period where the outgoing managing director/owner remains for a contracted period to assist with the running of the business.

B. Employee/Friendly Buyer Purchase.  This often involves the owner financing the sale with the staff (or friendly buyer) paying off the business over time.

C. Selling/Passing on the business to family.  A succession plan should be implemented to ensure future management is qualified to run the business.  The outgoing manager/owner may keep a shareholding in the company in order to receive ongoing income/dividends.

D. Closing the Doors. Shutting down a company may be the preferred option when it has been operating purely as a Lifestyle Business and/or a job and there is limited or no value to other people.

Business Planning Considerations

Written Business Plan. Few small to medium businesses have a written business plan, although most business owners/manager have it in their mind.  Writing it down has the advantages of expanding and further defining the original vision for the organisation, putting a step-by-step process in place, in addition to increasing the level of commitment to achieving goals, KPI and the ultimate aim of the business.

USP (Unique Selling Proposition)/Differentiation – there are numerous competitors in your market, both locally and perhaps via the internet.  What differentiates you from your competitors in a positive way that benefits your target market?  This point of differentiation could be price, expertise, customer service or product/service related.  Be careful that you “under promise and over deliver” on any claimed and advertised USP.  For example, Domino’s would be out of business if their USP of “delivered in 30 minutes or it’s free” couldn’t be achieved.

SWOT (Strengths, Weaknesses, Opportunities and Threats).  A SWOT analysis can be a very productive exercise for business owners to conduct in order to honestly assess both internal factors (strengths and weaknesses) and external factors (opportunities and threats).  It then becomes a case of how to leverage strengths/opportunities and how to overcome weaknesses/threats.

Contingency Planning. A SWOT analysis should result in numerous potential business strategies which then need to be prioritised.  For example, targeting clients supporting the Iron Ore industry may be the preferred option given the strength in this sector.  Other target markets arising from the “opportunities” analysis may include the Gold Sector and/or Oil/Gas which were initially prioritised lower than Iron Ore.  The contingency or “Plan B” in this case could be to shift the company’s marketing efforts to Gold and Oil/Gas supporting companies when/if the Iron Ore spot price falls below $70/tonne.

Top Down vs Bottom Up Planning.  Traditionally small/medium businesses have conducted planning using a top down approach where the managing director/owner decides on the direction of the company, target markets, production processes etc.  Consider using a “Bottom Up” approach where workers and section heads have an input into matters that they are directly involved in.  This results in all personnel having a sense of ownership in the company’s decision making process and thereby having greater loyalty to a company. Additionally, personnel that work in a specific area should have a greater understanding of the issues and opportunities associated with the area in which they work and should be able to assist in overcoming problems and leveraging opportunities that may not be evident to management.

Financial Planning every aspect of your business plan is going to have a cost associated with it.  Budgeting for the implementation of new strategies should take into consideration

  • the costs of similar activities (if previously undertaken).
  • the opportunity cost of undertaking the activity. Where opportunity cost is “The cost of an alternative that must be forgone in order to pursue a certain action”. For example, if one of the administrative staff in be tasked to produce an Operations Manual, the opportunity cost is the cost of work that would otherwise be done by this person.
  • budgeting to allow for the fact that the strategy may not be successful.
  • contingency funding for overruns in the budget in the unlikely event that the initial financial forecast was a bit optimistic.

See our page on Financial Issues for additional information.

Action List – you can analyse the World, Australian and local markets, customer demographics, buying trends, competitors in each market segment for each good/service you offer, internet marketing trends, social media etc – all this information should lead to specific actions to be taken and in what order.  This may take the form of a one page spreadsheet/Gantt Chart which is easy to update and encompasses all matters in one view.