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Profit Plans and Post Audits from Michael Neidle

Well managed companies create profit or business plans and then determine if they are working.

One should start out with an analysis of one’s historical performance, what has worked, what has not and why. They then need to create a realistic vision for the company, long and near term. This is called the strategic and the tactical plan. This should consider various scenarios to determine how the company might perform under different conditions and economic scenarios, providing for random events with fall back options. The reason historical results matter is that many companies look at the planning process through rose colored glasses. Reviewing ones prior business plans forces them to own up to how lofty goals might have not met reality. A good business plan undergoes numerous revisions as more facts become evident and is a mix of blue sky dreams and conservative reality.  

Many people think that the planning process is an onerous and boring accounting exercise where one extrapolates what happened the prior couple of years and assumes that things will continue on the same path and then arrive at next year’s sales and profit. To do this not only lacks thought and creativity, but misses the opportunities to think about any options one can pursue as well as the threats that lie ahead. Others believe that if they were successful in the past they will continue to be so in the future by doing the same old things. Others are under the impression that you can reverse your fortunes by just trying harder, making more sales calls and tinkering around the edges. 

The planning process comes out of the creative business plan which should be well thought out and generates a set of financial statements that one can select a final profit, or game plan from.

1. This program should consider the company’s strengths and weaknesses, opportunities and threats

2. What are the forces one should consider in their thinking, including “black swan” events? 

3. These are possible events or warning signs that one should look out for that can change everything?

4. Do we have back up and bench strength if key people leave, is our LOC satisfactory, etc.?

5. One should set responsibilities by person, with deadlines and follow up to keep the process on track

6. What are the range of sales and profits one can expect based on the resources that are available

7. What will our competitors do to take away our market, how will we secure our client’s, etc.?

8. What will we be doing to penetrate our competitors market and convert prospects into clients/

9. What things have we missed in putting together our game plan and how will we factor them in?

10. What will we measure to make sure we’re on track and make course corrections as needed?

But the acid test is the post audit, which most small and mid sized companies do not perform. It is owning up to what you did right and wrong so that you will improve on your process as you move forward. It is not to find a culprit, but determine what you can learn to do better the next time and fix what can be corrected before it is too late. For example you may have said your growth is dependent on a new pricing schedule and that in fact was not as well received, government policies changes things we didn’t anticipate, etc. An early and periodic post audit will do this. Waiting too long will lock in your poor decision and not allow you to change things until it’s too late. 

 

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