Financial Planning in Action

Once you have chosen the actions you believe will produce the results you want, it’s time to determine both the projected income from those actions and the expenses that correspond to your plan. This is one of the most important steps in the planning process –and the one where many planners fall short.

Before creating the financial projections for your year’s operations, make sure you’ve researched the costs of carrying out your plan. Let’s say your strategy is to increase the percentage of prospects that are converted to a sale, thereby increasing sales. You not only want to project what that will mean to total sales, you’ll also want to know when the income (cash) can be expected.

Consider the time between sale and delivery (whether goods or services). Let’s assume there’s a one month lag time between sale and delivery. If you carry Accounts Receivable and it takes 60 days from delivery and invoice to receipt of payment, you’ll have a 3 month span between sale and receipt of payment. If any of these are longer, you’ll need to make adjustments accordingly. See why it’s so important to know the timing on each aspect?

Staying with this example let’s make some arbitrary projections based on our plan. You have decided that by increasing the conversion rate of sales you’ll be able to increase gross income (revenue) by $60,000. Your plan to accomplish this is to improve your sales materials and provide specific training to your sales staff and management. The materials need to be created first so the training can take place using the new materials. Here’s the amounts and timing as we’ve determined.

Projected Income (Cash) from Plan       $60,000 ($15,000 each month Dec. thru March)


Improved Materials       $10,000  (Costs incurred in June)

Sales Training                  10,000  (Costs incurred in July)

COGS *                           20,000  (Salaries, Product & Service Costs)

Sales Costs                       13,000  (Commissions & Related Sales Costs)

Total Costs of Plan         $53,000

Return on Investment          $  7,000 (11.6%)

*Cost of Goods Sold – This is the cost to provide the product and/or services. It includes related payroll costs plus all other related costs to deliver product or service.


By calculating all this in advance you can determine if the return is worth the investment. In our example our return is projected at 11.6%. If you think that is an adequate return, you’ll go forward. If not, you may want to rethink how you can either increase return or reduce costs.

Since the materials and training costs will occur before the income is to be realized, it’s helpful to plot this out by month to see how cost will be covered.


                   June              July            August        Sept.          Oct.           Nov.         Dec.

Income                                                                                                                                   $15,000

Expenses    $10,000(a)    $10,000(b) $  5,000(c) $  5,000(c)  $  3,000(c)

COGS                                                                                      $  5,000     $  5,000   $  5,000

                  January         February    March

Income      $15,000        $15,000      $15,000

Expenses   $         0        $         0      $         0

COGS       $  5,000        $         0*    $         0*

(a)    Sales Materials,   (b) Training,  (c) Sales Costs

* In February and March we’ve already completed the services from the initial sales and are finally realizing the return from our earlier investments.

Note: This chart represents CASH outlay and income for the projected period. Sales took place in September through December, but with a one-month delay in delivery and billing and a two month lag on receipts the first cash doesn’t come in until December from a June and July activity.

This is why financial planning is so critical. We’ve got to know how we’re going to cover the up-front costs pending results from our expenditures. We may need a credit line, a loan or possibly an infusion of outside capital. By calculating all this in advance we’ve got time to take whatever action is necessary to cover the costs. Or we might decide to make adjustments in timing so that our up-front costs fall in a part of the business cycle that typically has a higher margin. By playing around with timing, costs, sales and receivables we can create the most cost-effective plan and be prepared for the results.

Of course, you’ll need to do this with each aspect of your plan. It’s helpful to determine cost per unit sold for each different item you sell. And it’s probable that the costs are incremental. Once the fixed costs are covered, the variable costs (such as sales costs and COGS) may become less expensive per unit as the volume grows.

You’ve now created the budget that corresponds to your next year of operations. You have your plan of action with timing of the related costs and income.

The next step I recommend is to enter them on a financial projection spreadsheet that’s also set up to monitor your actual expenses and income as they occur. This gives you an easy way to manage your cash and see how you’re doing against your plan.

Once you’ve made sure you have the means to support your plan, you’re ready to put your plan into action. Yes, that’s our topic for next time.

How to Create a Strategy: A Case Study

Clients often tell me they’re not really clear about the concept of Strategy. It’s a lot easier than you might think. Strategy is one of the steps in the planning process and cycle. The sequence in the business planning process is Vision, Mission, Goals, Strategy.

Vision is where you start and is the most abstract. Once clarified it become the guiding light toward which all your activities will be directed. Your Mission is what you do in your business to carry out your Vision. Goals are specific measurables that define what will exist when you’ve realized your Vision. The Strategy step is the thinking through of how you will achieve those Goals.

Start by considering the resources you have and the direction you want to go. Evaluate various scenarios and steps and predict how they will turn out. An analogy that makes it easier to understand is the game of chess. Various moves are considered with predicted outcomes BEFORE the actions are taken.

Some examples of Strategy might be:

– identify and develop an untapped market (based on observed trends);
– provide staff training and coaching (to strengthen customer service)
– redefine our brand (to fit our updated target market)

Developing a clear Strategy is critical because you’re going to base your Plan on your Strategy. As you know, it’s the activities you carry out in your day-to-day operations that produce the results you see at the end of the month. It is likely that you will have more than one Strategy because you’ll probably have several Goals.

There may be more than one Strategy for each Goal. An example might be to “create a contact database” and “hire a part-time assistant to manage your database”. You’re not actually at the Plan level until you determine the steps you’re going to take to hire that assistant (seek employee referrals, network word of mouth).

Bill Sipes, CPA, is founder and CEO of a community-based Accounting Business, which provides Tax Management, Write-up, Financial Services, Financial Support Systems and Business Valuation. He sees opportunities to add even more services and products and has decided to take on the persona of a Financial Advisor. I’d like to share the story of how he recently developed his Strategy for this business because it clearly exemplifies the process.

When there was an economic downturn in his local community, Bill realized he needed a new Strategy that would “turn his clients into cheerleaders” and turn around his bottom line. He decided to find out where his business had been coming from in the recent past.

He found out he got most business from 3 sources: mailing to professionals, new business/product mailing, and new sales to existing clients.

He called together his staff to discuss his findings and to ask for their help in determining a new Strategy. Following the meeting he sent out a summary of “what he heard” and asked for their continued thoughts. The staff were acknowledged and given a role in the process.

Here’s Bill’s memo to staff.

“Thanks to all. I think this is the most important meeting we have ever had. This is what I heard.

1. We need to separate ourselves from the other CPA firms.

2. Several ways to do this were mentioned. Speed of service was one. Another was building relationships.

3. We are going to develop a system of building relationships with our clients. Jane is going to write a rough script to follow whenever we get with a client…..The Moment of Truth.

4. I am going to ask Annette to print a few banners that say…..The Moment of Truth.

5. Jeff is going to check with the software people about Telemagic and Act.

6. We are going to spend more time “showing our face” in the community and to our clients.

7. When with a client always ask……How are we doing?

Thanks again for a great meeting……which I am sure will lead to a great system that will turn our clients into cheerleaders.”

Here’s Bill’s Strategy.

– Develop a plan to cross-sell existing clients.
– Continue to use Marketing Assistant to carry out marketing campaign to targeted list.
– Make Customer Service visits with our commissioned software salesman to cement relationships and try to cross-sell.
– Hire a commissioned insurance sales rep with a benefits background to sell Long Term Care Insurance as a new service (to cross-sell).
– Redefine our “brand”. Develop our new image to support our updated profile.

He’s building his redefined brand on “trusted relationships”. The staff is very enthusiastic and willing to support each other’s efforts. He also plans to have “Moment of Truth” banners made up to keep the staff focused on what’s important.

Bill is utilizing a Strategy that’s based on research into information about his own business and he has buy-in from his staff. He not only knows where he’s going, he has a Strategy to get there.

Five Questions to Help Create an Effective Marketing Plan

Questions can be a wonderful tool. In planning, the key to success is knowing the right questions to ask. That certainly applies when it comes to creating a Marketing Plan.

Answering the following questions will provide you with information needed to create the framework for an effective plan.

What is your value message?

This is the first and most important question you can answer. Until you know what value you wish to communicate about your product or service, attracting customers will be unfocused and difficult.

Consider how you’re different from your competitors. Your message must clearly state the value your customer can expect to receive. And remember, there is at least some emotion behind every purchase. Your value message might be that you are timely and accurate (you’re respectful), you offer a lot for a little (I feel smart buying from you), or your ingredients are top quality (I deserve good things).

“Simple fare, freshly and tastefully prepared” is the message a restaurant might want its prospective customers to get. When seeing or hearing the name of the restaurant, this is what we want them to remember. Likewise, when thinking of that kind of food, we want our restaurant to come to mind. The simpler the message, the clearer it will be. The clearer it is stated, the stronger and more “attractive” it becomes. Clarity is the key.

Of course, you not only have to sell it, you then have to deliver the value. [Read more…]

7 Questions to Ask If Your Business Is Struggling

Are you one of the many small businesses whose market has dried up? Some industries that I’ve seen hit particularly hard are financial advisors, consultants, graphic designers, event planners, photographers, catering companies, esoteric retailers and many others that depend on discretionary expenditures. For some entrepreneurs it may mean cutting both their business and personal expenditures to the bare bone.

Continuing to pursue a declining or over-saturated market is only going to put you closer to the edge. When there are a lot more suppliers than there are customers something has to give. It’s time for some strategic decisions and action.

Many are taking creative, and sometimes drastic, actions to stay alive. They have recognized it’s time to save their business.

If it’s time to save YOUR business, ask yourself the following questions.

1 – Where else can I cut short term expenses now to conserve cash?
Make a projection of your cash needs on a monthly basis over the next 6 months. Use historical financial information to help you decide about the future. Keep in mind, however, that if revenue is down variable expenses may be down also. [Read more…]

Business Fitness: Prerequisite to Growth

Everyone knows the value of physical fitness. It may be a struggle in the short term, but the medium and long term benefits are worth it. The same is true in business. If you want your business to grow make sure it is “fit” first. A fit business is sleek, strong, stable, flexible and attractive.

My thesis has always been that it’s important to reach a state of business fitness as the foundation for future growth. You want to be able to answer “yes” to the following questions. If you can, your business is in a state of fitness and you are ready for growth.

• Are you concentrating on the critical elements that determine the condition of your business – such as Gross and Net Revenues, Accounts Receivable, Inventory, Fixed and Variable Expenses, Unexpected Expenses, Cost per Unit Sold, Cash Flow, Net Profit/Loss, Cash Reserve or Debt?
• Have you clearly defined your market and targeted your marketing efforts to the most likely groups?
• Have you identified and eliminated all unnecessary expense?
• Is your inventory and/or accounts receivable as tight as possible? [Read more…]

7 Questions to Ask Before Launching a New Product or Service

The economy has been good to many small businesses this past year. Many are ramping up for expansion through the launch of a new product or service. This can be an ideal way to grow your business if you do it strategically.

To help increase your odds of success with a new product launch, I suggest you analyze your business and market history. Here are seven questions that will assist you in analyzing your information and creating a growth plan.

1 – Is my business already on a solid foundation?
If your systems, processes and personnel are not ready, efforts to expand will overload your capabilities and set you up for failure. Before launching a new product or service, make sure you are ready to handle the orders, deliver the product or service and collect your money in a systematic and timely fashion.

Also, make sure you have one or more strong indications that there is a market for what you plan to offer. Strong past sales of something similar or a part of what you are expanding are usually a positive sign. Be careful you don’t fall in love with an idea and disregard the warning signs that the market won’t support it.

2 – What is the size of the market?
Do a competitive analysis. How is your new product or service filling a market need? What will be your position within this market? Who is your target market and how will you reach them? You want to reach the conclusion that your efforts have the potential to pay off. If you are offering the same product to a new or broader market the same principles apply.

3 – How should I price it?
Pricing is an important consideration. When you do your competitive analysis you’ll learn how similar products or services are priced. You want your price to be attractive enough to sway people to buy; unless you’re pricing a luxury product and the higher the price, the higher the perceived value. The option for prospects to keep their money and not buy from anyone is always one of your competitors.

I find it’s better to start on the low side to make sure the perceived value is greater than the cost. You can raise the price once demand has been established.

4 -How much revenue can I expect to generate within a specified time period (usually one year)
This is an important question and is dependent upon the actions you take to generate sales. You’ll need to think through your Marketing Plan in order to come up with a realistic projection of how many widgets you can sell at $XX within a specified time period. Analyze your sales history to help you know what has worked in the past. If you have a long lead time for sales, that should be taken into consideration. This may mean hefty upfront expenses with corresponding delayed revenue income. To be conservative make your revenue projections and then knock off 30%.

5 – What will it take to realize this additional revenue and profit?
What additional resources will you need when launching a new product or service? Do you need to hire more people, buy more supplies or inventory, etc.? That additional cost must be taken into the equation. These may be in the form of fixed or variable costs.

Consider what the competition is doing and what market insights and trends you can utilize that will generate sales. Select one or two actions for your initial campaign and test on a small scale before committing major dollars.

At best, making a financial revenue and expense projection is always a guesstimate. Gathering and analyzing pertinent information is the key to accuracy.

6 – Where is the break even point and what is the potential profit?
The formula to determine how many you have to sell to start making a profit is Fixed Costs divided by (Revenue per unit minus Variable costs per unit). A quick and simple explanation of this can be viewed in the article, “Breakeven Analysis” . For some products or services the upfront investment is such that the breakeven doesn’t happen for more than a year. If that is your situation, you’ll definitely want to know how you’re going to capitalize such a project.

7 – Is this new direction in line with my overall Business Vision and Long Term Goals?
This is a good time to determine if your new offering will take you closer to (or further from) where you want your business to be going. One of the real values of having a clear Vision and Goals is to help you make this type of decision for every opportunity that presents itself. Think long and hard before starting something new that does not have an obvious fit.

Answer these questions and you’ll be a lot more confident about your plans and in a much better position to succeed when bringing a new product or service to market. Good luck with your new project!

Information Overload: 5 Ways to Cut Through the Clutter

Two or three years ago you could create a marketing campaign, send out a series of e-mails and expect a reasonable response rate. Things have changed. We’ve hit information overload and we just don’t have time to read and respond to everything we’d like.

Information overload has become a chronic problem, so if you want to reach your target you must cut through the clutter. Something has to really grab me and be super easy or I’ll just delete it. And that seems to be true for many people I speak with. So how do you move beyond information overload to reach those who will want to respond to your outreach?

Here are some strategies to consider.:

Create a Compelling Message

What are the most urgent issues your ideal customer is facing? You can ask when someone signs up for your mailing list, downloads an online item or purchases something from you. Don’t just get their name and e-mail address, send an autoresponder asking them to send you a reply. Keep it simple and as easy as possible.

Ask people you meet at networking and events what are their urgent issues. Create products and services that address the most common ones. Then create your message using keywords that have surfaced during your research.

Make It Super Easy

The other day I wanted to sign up for an event and when I looked for the time and how to sign up I couldn’t find it right away. Within 20 seconds I was gone. I just wouldn’t take the time to wade through the content to find it…and neither will your prospects.

I offer the One Page Marketing Plan, which makes it super easy to create your marketing plan. It’s a step by step do-it-yourself system with everything you need to not only create your plan, but use it as well. Simple, step by step is what you want.

Offer to Do It For Them

But some people would rather have me do it for them. Obviously I will need information from them, but once I have that I can apply my own techniques to create their plan. It costs more, of course, but for those who want a strategic plan to follow, my consulting services are perfect for them.

People want results, but they often don’t want to or don’t have time to do the work to get them. If you can do it for them or at least partially do it for them, you’ve got a strong selling point.

Make More Direct Connections

I have found that I’m much more successful when I reach out directly, one-to-one to people who are in my network. These are people who have purchased something from me in the past, have participated in an event I hosted, or are a prospect I’ve had a meaningful dialogue with.

The telephone is still a wonderful business tool. What I’ve learned works best when you’re reaching out to someone you haven’t communicated with recently is to make a phone call telling the person you’re sending them an e-mail. On the call or in the voicemail tell them what it’s about briefly, making it as compelling as possible so they will read the e-mail. Otherwise it may just get deleted without being opened.

Leverage Social Media

Business is still built on relationships. It’s just that the way in which those relationships are managed has morphed somewhat with the advent of information overload. The social media offers great tools, but be careful, because they can add to the sense of overload. Be selective and consistent and people will begin to know, like and trust you. I’m much more likely to respond to something from someone I know rather than someone I don’t know.

Newsletters are still a viable option for staying in touch, but the open rate has dropped. So I need to apply the other options as well.

Apply as many of these strategies as you can and you’ll be ahead of your competition.

The One Page Marketing Plan

I’m so excited about this new One Page Marketing Plan I want to share the first part with you now. If you begin to see what it can do for you, I hope you’ll get it for yourself.

The purpose of the One Page Marketing Plan is to simplify the steps of creating a practical plan you can put to use immediately. It can be used to support a marketing campaign or to carry out your overall business plan.

We start by gathering pertinent information and answering specific questions. We give you explanations and examples to direct your thinking plus simple tools that provide a structure you can use over and over again. You are both learning and doing at the same time.

When you actually put the Plan to use, you’ll not only see positive Results, you’ll have started a new habit that will prepare you to reach the next level in your business. [Read more…]

Use Strategic Alliances to Grow Your Business

Many of today’s successful businesses are built on strategic alliances — a collaboration of resources for the purpose of gaining an advantage in the marketplace. This is especially true of virtual businesses, which are usually based on a network of people in different locations, with defined roles, in a temporary or evolving organization. In order to grow you need others.

If hiring an employee or contracting for service is not the right solution, a strategic alliance or partnership may be the answer. Engaging a “partner” in the process means you will share risks. Responsibilities and rewards.

Strategic alliances are a great way to create or test new business ideas without a huge expense, but it does require attention and good management to succeed.

Here are the steps I use and recommend following when seeking strategic partners.

Envision the Goals you want to accomplish.

Be as clear as possible. Then ask yourself what it will take to achieve these goals? If you see you can’t do it alone, find the resources you need elsewhere. [Read more…]

Get the Results You Want

One of the greatest enemies of getting the results you want is disorganized thinking and unfocused actions. Look at the image on the left.

What do you see? Disorganized thinking and unfocused actions. When operating in this mode, there’s lots of activity, but little is accomplished.

To get the results you want, those assets and actions have to be aligned and directed, like the image on the right. Look at the strength and power these two elements add.

Entrepreneurs tend to have lots of good ideas, usually function at high energy and are often impulsive. But what has the potential for a solid business often falls apart for lack of organization, structure, focus and direction. Actions are frequently taken haphazardly and sporadic without a goal or a plan.

The objective is to align assets and actions so they all go in the same direction – toward your goals. The sequence of steps is to identify and organize your assets (the value you provide to the marketplace), create a clear message and then strategically plan and take calculated, directed actions designed to lead to your goals.

In order to get the Results you want, you must align your Goals, your Strategy, your Plan and your Actions. Actions implement the Plan, which carries out the Strategy, which leads to your Goals. Therefore, Actions ultimately should lead to Goals. To the extent that Results match Goals, your Actions have been on-target and successful. [Read more…]