Planning – do I need it?
Have you ever thought about why all larger companies have planning and controlling? Is it because they don’t know how to employ their employees, or does it have a deeper reason? If we ask our smaller clients, they often say: “That’s what I have in mind” or “My bank account is my planning”. But shouldn’t we, especially in times when things are becoming more complex due to reductions, deferrals and loss of sales, not take these large companies as a role model? At some point the limit of what you can plan in your head is reached. Further necessities of planning are:
- Written planning creates security, especially when scenarios are presented.
- A written planning sometimes already points out options for action.
- A written plan can be compared with the actual figures.
- A written plan creates certainty in the question of the company’s continuation.
- The bank wants a written plan when it comes to granting loans.
- Or think of a company sale: A written plan is the basis for a company valuation.
We could go on, but let’s leave it at these examples.
In a written plan, you deal intensively with your company. You consider where your company should develop, which sales lines you already have or want to have. You define goals. You deal with your work-life balance. Simply put, you are working ON your company and ON your life. Because your company is undoubtedly one of your most important goals in life.
But what is planning? How many years must be planned? Is it enough to plan on an annual basis or does it have to be planned on a monthly basis? How accurate must planning be? What if it doesn’t work out that way later on?
f you google “planning”, you will often find the following definition:
“Planning is the mental anticipation of future action by weighing up different alternatives for action and making decisions for the most favorable path.”
This definition reminds me a lot of a hiking map. There, too, I look at the path I take to reach my destination. Which companions do I have, to whom I have to adapt the route, which alternative routes, or sometimes: What shortcuts are there?
Let us now look at a concrete planning. Depending on the occasion, the planning covers several years, as in a company valuation, or only a short period of time, as in the current corona crisis, for example, when the question is asked: “If sales fell to zero again tomorrow, how long would my company survive? You want to do the math? Go ahead. You plan the costs incurred and calculate them down to an average. Then calculate the amount available from all bank accounts and lines of credit. In the last step, divide the available amount by the average monthly costs. Now you have reached the financial reach, i.e. the number of months your company could survive without help and without turnover.
There are many people who are perfectionists. That’s an excellent quality in itself. But you’ll get lost in the planning. The perfectionists know that, and that’s why they often don’t even start planning. Dear reader, if you are also such a perfectionist, then that is basically great. But please: Plan anyway! No single planning is implemented in exactly the same way. It is the task of controlling to determine, analyse and counteract planning deviations and perhaps draw up a new plan. But the first step is always the first planning.
The type of planning depends on the purpose and purpose of the planning, as does the planning depth and number of years. Sometimes only one yield planning is necessary. Namely, if you only want to have a target/actual comparison or, as in the example above, calculate the financial range of coverage. In most cases, however, integrated revenue and liquidity planning will be necessary. Especially if you want to discuss credit requirements with the bank. This is because here the question is how much liquidity the company needs. To do this, however, one must first create a revenue plan from which the liquidity plan can be derived directly. This reads as if it were child’s play. In fact, there are a number of possible positions that need to be considered and discussed.
The perfectionists will probably turn the pages quickly now, because this seems to take too much time. Yes, you can get lost in planning. And no: as an accountant firm we are at your side and plan with you. To stay with the example of the hiking map: the planning will have the scale you need to clearly see the path for your business. Because you, as the boss, need to know where you want it to go. Talk to us, we will help you!