Today we’re talking about your strategic plan.
Kind of scary. Anybody who’s in a medium, large, or enterprise level business, strategic plans are a way of life. A daily part of your life. Small business though, strategic plans are kind of scary. And it’s often something that you associate or think of when you have to make a business plan, if you’re going to start a business or get financing.
The simple thing about a strategic plan, here’s all the ideas you need to know real quick.
- A strategic plan is a document that helps you build the measurements that show you where you are on your path to success. So the key thing about a strategic plan is
- what goes into your strategic plan, how to record and decide on information, and
- how to use it to measure what’s going to happen.
Take away: by the time you’re done here with us, about ten minutes of your time, you’re going to be able to build a strategic plan, a real simple one, put some figures in there for yourself, of course, and then figure out how to measure yourself going forward.
Strategic plans are actually very, very simple. It is very much like a roadmap so that when I leave my home and drive to another city or place or business when I don’t know how to get there I’ll look at a map ahead of time. And I can look at the roads, the streets, the avenues, the major landmarks, to figure out where I am in comparison to where I need to go, how far I’ve gone, and how much further I can go. And anybody knows this if they’ve taken a long road trip because you have to plan for what? Fuel stops. Pit breaks. In other words, I have to go to the bathroom. I need to get something to drink. I need to eat. If I’ve driven long enough, I need to stop and rest or sleep.
A strategic plan is that roadmap for the long distance drive that your business is going to take. So you know where you are when you have to refuel, and of course when you need to rest and what you need to do next to keep going the way you’re going. And also so you don’t get off track. Strategic plans are really simple. There’s just a few things that we need to put down there.
You need a piece of paper, and you need to write a dollar sign in the top left corner. Then the top right corner, you need to write a little E and an X and a P, for expenses. Sound good? About the middle of the page on the left side, you just need to put two Ps, PP. And no, not roadside bathroom break. I want you to put PP. That stands for people. Over on the middle right side of the page – with me so far? – facilities. And lastly, at the bottom of the page, a little bit of room, give yourself a couple inches, I want you to write Cash. It’s the five things that your strategic plan should be able to measure.
In the top, where there’s the dollar sign, that’s revenue. How much revenue is my business going to make this year? You’ll be as imaginative, or, well, as conservative as you want. But I want you to put a dollar figure right now. I want you to think what your business is doing right now. And if you only have a month or two months or three months, that’s fine. But I want you to take that month or two months or three months and I want you to think about an entire year, and write a dollar figure down for an entire year. I want you to think how much it costs for your business to run, expenses. In other words, what it takes for the business to run every day.
Let’s say you’ve got three months and you make $10,000. So in revenue, for an entire year, for twelve months, I take that $10,000 multiply by four. So I would put $40,000, for example. And over in my expenses, for the three months, while my revenue was $10,000, my expenses were $5,000. So I take that $5,000 and say, for four more, for four quarters in a year, my expenses are going to be $20,000.
And then when I go down to the PP, for people, what I want to be able to see there is two things. One, how many people do I have now, and how many am I going to need as the business expands, and what does it cost for people? So in this example that we’ve got, we’re at $10,000 revenue for the quarter, $40,000 for the year. $5,000 in expenses for the quarter and $20,000 for the year. The people side of things, we’re going to say it costs $3,000 for people. So $12,000 for the whole year. And we needed one person. So we’re gonna put $3,000 next to where we put $12,000 for the whole year, right. Put the year above the whole year total. And then we’re gonna put a number underneath, that’d be your one year total of one person. With me?
Facility. Where do we do business? What does it cost for us to maintain the roof over our head or everything else that we need for our business to operate? Make sense? And lastly at the bottom, cash. Cash is a funny thing. Cash is not profit. Cash is how much physical money we want. And you’ve heard me talk about cash before. If not, go read my other articles. And if you really wanna know more, definitely talk to me.
But cash, how much do we wanna keep over? If our year is going to make $40,000 overall, and now we said it’s gonna cost $20,000 for the business to operate, and $12,000 for our people, and our facility, let’s say our facility is going to cost us $1,000 a quarter, so $4,000 for the year. You’ve got 20 and 12, and 4,000. What is that, 36,000. $40,000 we’re gonna make for the year, $36,000 combined for our expenses, our people, and the roof over our head gives us $4,000 in profit. But, as we know, our net profit does not necessarily create cash.
So how much of that for us to measure do we expect, because other expenses, last minute expenses, taxation, things like that are going to eat up part of that net profitability, including any cash that we’ve got. So how much do we want to preserve at the end of the year? Well, with only $4,000, according to the example we’ve got, that’s not a lot. So we might say to yourself, I expect to preserve a thousand dollars in cash. And that would be my expectation to go in that bottom left corner with a little bit of room.
Where your strategic plan takes shape, so you can use it to measure what’s going on, is when you sit there and you say for an entire year, this is what I’ve got so far based on what my business is doing. Now I’m going to do year two, and year three. But when I look at how busy my business gets, from this year I get $40,000, next year it does $80,000, does that mean that my expenses are going to double? Does that mean that the number of people I need for my business is going to double, so that cost of people is going to double as well? Do I need to spend more on facilities, or is what I have currently good? And then if that’s the case and I have more net profit, what is my expectation to hold onto cash for the end of the year? How much am I going to hold onto?
In the cycle of business, not me as the business owner, what can I take out, how do I get paid, what do I get paid off of that, how much does the business hold onto so it’s got the strength financially to keep doing what it’s doing, to absorb blows when things don’t go well, and to move very quickly and make decisions when advantages or opportunities present themselves?
Your strategic plan should have at least a few years in place. I typically suggest three. You can go as many as five, but past three it’s kind of guessing at that point. And be very, very critical on what that revenue, your expenses, how many people you think you’re going to need, whether the facility you’ve got is sufficient or it needs to get bigger and will cost more, and how much cash you wanna maintain at the end. Once you can do that, you’ve given yourself five simple measures to show yourself month to month, quarter to quarter, and over an entire year, whether your business is accurate or not. So when you go back, when you watch and when you measure and when you get to the end of your year, you can look and see how accurate was I based on what happened to my business.
Now, what do I need to do to change that? Remember we talked about what it was you’re gonna measure, how you’re going to measure it, and how you’re going to apply it. That’s where we get to the end of a year, an end of a period, to be able to look at the work we’ve done, say definitively whether it was a success or not, and what we need to change in the way we measure that going forward.
Now you are going to be saying “Mitch, this is crazy talk. I’m gonna write everything down and I’m gonna forget it soon. It’s a great idea.” This is what you need to do. Talk to me. You’re gonna find me, you’re gonna talk to me, we’re gonna have a great conversation about this. I’m gonna help walk you through it. And then, when that’s there, I’m gonna help you to make it a reality. Sound fair?
Love you to pieces. Thank you for reading. You come talk to me, we will make your strategic plan make sense, and make sure that it is a tool that drives your business to success in the future. Have a great day. Bye bye.