ANNUAL PLANNING
As a family business leader, do you find yourself consumed by day-to-day activities and short on time for planning? Or maybe you find the planning process a bit daunting, especially in these times of unrelenting uncertainty? With these questions in mind, I am preparing a 5-week series – starting today – to help you gain confidence with the annual planning process and better prepare for 2023. I hope you find the series useful. Now let’s get started!
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Part 1: Setting the Stage - Annual Planning vs. Strategic Planning
To help frame the 2023 planning process, let’s first look at annual planning in relation to strategic planning. How would you say the two are different? How are they related?
To help visualize the concept, imagine sailing a ship out at sea for commercial purposes in the 1800s. You could plan the resources needed to trim the sails, clean the decks and feed the crew, but why are you out at sea? Where are you headed? Through strategic planning, business leaders determine their mission and goals, markets and customers to pursue, key success measures (KPIs), initial financial models, SWOT analyses, and a high-level road map, etc. Longer-term planning also includes your ideal operating model (i.e., your ship) and organizational strategy (e.g., crew make-up, roles, rules, etc.), but these sometimes fall under an intermediate planning exercise.
Now let’s take a look at annual planning using the same imagery. With your goals and overall course charted (i.e., your strategic plan), you need to estimate, procure and assign specific resources so your ship can effectively make the journey or a specific leg of the journey (e.g., 2023). Additionally, what are expected weather patterns during your trip and how might the winds blow you off course? Ultimately, annual planning is how you intend to execute upon the goals and objectives from your strategic plan in the coming year. In doing so, you prepare a budget and other proforma financials, review prior year performance, establish your annual or quarterly objectives & key results (OKRs), set your KPI targets, determine or tweak resources, and leverage your established process to identify => prioritize => resolve business issues, etc.
Notice how strategic planning and annual planning fit together? Now let's finish with a key concept for the week.
Key Concept for this Week - In this business climate of continuing uncertainty, it is critical to establish a baseline plan for 2023, but incorporate a few alternate scenarios that might play out, so you can proactively adapt your business in 2023 as conditions become clearer.
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Part 2: Annual Planning – Preparing for the Next Leg of Your Journey
A great way to think about annual (“operational”) planning is to consider it as preparing for the next leg of your overall journey. Elements to consider include the resources needed to execute upon your strategic mission/goals within the coming year, your objectives (OKRs) and performance targets (KPIs), your budget and proforma financials, a review of prior period results, and your open issues. With these points in mind, how might different scenarios play out?
Also, are you leveraging intra-year reviews and plan adjustments (e.g., quarterly, monthly) to help your business remain adaptable?
Finally, use the opportunity to take a pulse on whether your external landscape is changing (e.g., economic conditions, industry evolution, customer preferences, potential competitor moves) in relation to your existing internal capabilities, and your overall strategic plan.
Key Concept of the Week – Whether you follow a calendar year cycle or other industry-specific cycle, embed planning with adaptability into your culture! At the same time, tailor your planning needs based on the size and complexity of your business.
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Part 3: How Do Family Dynamics Fit into Annual Business Planning?
So how do family dynamics fit into the annual business planning process? This is a great question and the focus of today’s segment.
The intersection points between family and business are largely addressed through strategic and organizational planning. Examples include decisions on ownership, mission/goals, governance structure, leadership roles & authorities, any policies determining broader family involvement in the business, potential family benefit policies (e.g., earnings distribution), etc.
That said, family touch points with the business have a clear impact on and help drive annual planning. First, the leadership roles and decision-making authorities you have determined for the company ultimately drive annual business (operational) planning. Maybe you and/or other family members make annual planning decisions. Or maybe you have a non-family employee who makes these decisions with family buy-in. In either case, are there any material friction points hindering effective decision-making or annual plan execution?
Second, annual planning allows you to take a pulse of overall family dynamics in the business. The size and complexity of the business, the level of interrelatedness between family and business, and the extent of potential family friction points will help dictate the level of formality appropriate to govern your family dynamics. For instance, what potential impacts do family dynamics have on your business culture, your employees and your ability to execute upon your strategic mission?
Key Concept of the Week – Consider what elements of your family dynamics currently serve as a competitive advantage, a disadvantage or are not relevant. Are there potential areas of improvement?
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Part 4: Annual Planning - Making it Tangible in Today’s Environment
In the 4th installment of my mini-series, let’s now make annual planning tangible given the current business landscape.
To begin, what might the economic backdrop look like in 2023? As the Fed continues its mission to contain inflation, PPI and CPI are expected to temper from 40-year highs, but to remain elevated. How might this impact your decision-making on material purchases, commodities, labor resourcing, etc.? How might the higher rate environment impact your financial health (e.g., existing or potential new business loans in 2023)?
At the same time, labor supply pressures have eased a bit in certain industries/geographies in 2022, and this trend is likely to broaden in 2023. Also, the supply chain shows signs of post-Covid improvement, but should remain sensitive to geopolitical instability, labor relations, commodity price volatility, etc. depending on sourcing (e.g., domestically or abroad). Finally, be on the lookout for consumers to pull back on discretionary spending, as market volatility persists (i.e., material decline of both stocks and bonds), as they continue to eat into their accumulated Covid savings due to inflation, and as they face higher borrowing costs.
Ok, how can I possibly try to plan out 12 months, let alone 3 months, in this uncertain environment? Great question! “Planning” for 2023 is meant as a proactive exercise to help form a baseline outlook, but also to help you remain nimble. Consider how might you respond if alternate scenarios playing out vs. your baseline expectations. Remember that the formality and extent of your planning process should fit the size and complexity of your business.
Key Concept of the Week - Your operating rhythms will ultimately dictate the frequency of business decisions appropriate to run your company – daily, weekly, quarterly, etc. Planning will help ensure consistency of your decision-making in alignment with your strategic goals and mission.
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Part 5: Annual Planning – Keep It Simple and Get Down to Business
Does this cartoon resonate when you think of strategic or possibly annual planning for your family business?
Today, I ask that you consider annual business planning as looking out over the near-term horizon for your family business, assessing your internal capabilities against your external environment. What are your goals for the coming year, what potential obstacles are in your way, what realistic scenarios might play out and how might family dynamics come into play?
This mind-set will help you to be proactive and nimble as you make decisions, deploy your resources and execute upon your intra-year goals (in alignment with your overarching mission)! Again, the size and complexity of your organization will drive the extent of your annual planning needs. In many cases, this can be a very streamlined process.
Thank you for the opportunity to share a few thoughts on annual planning. It would be a pleasure to help you plan better (both long and shorter-term), improve your operating rhythms, execute effectively or tackle other issues on your mind this fall.
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