Why You Need a One, Three and Five-Year Business Plan

Why You Need a One, Three and Five-Year Business Plan

Everyone in business whether large, medium or small loves to talk about planning. “Oh, it’s coming up to end of financial year so we’re busy planning for the next period.” Or “It’s business planning time of year again so let’s get stuck into our strategy sessions for the next 12 months”.

The problem for most businesses is that business planning in and of itself is actually not a lot of fun. If you are preparing with a traditional approach then you will begin by looking at the last 12 month goals and objectives and assessing how many you hit and how many you missed. From there, you will likely spend days locked in a room with your senior team talking about what the objectives for the following year are going to be. Not exactly conducive to a connected and collaborative working environment.

 

Why you need a business plan

Business planning is essential for the business to survive and prosper, despite a growing movement in some sections of the business community to move away from business plans.

 

Historical Performance

It is hard to argue that historical performance should not play a part in the planning process. Of course it must be considered. Past performance, while no guarantee of future result, certainly gives us an indication of what the business is capable of. And indeed, it shows where things might be falling down.  You would also be right to consider that a business without a plan is rather like a ship setting sail without a chart to follow.

 

Funding and Investment

Another reason business plans are important is that in order to obtain business funding or investment you simply have to have one. A bank or an independent investor is not going to risk putting their money up for a business without knowing where it’s headed. With a business plan, you can provide a sense of direction for your company by summarising its historical performance and forecasting future performance.

 

Team Engagement

Last but not least, it is not actually the business plan itself that will keep a business focused on its goals and objectives. Business plans don’t deliver results, people do. So it stands to reason that at least part of what makes a business plan successful is the the fact that your people came together in the first place to write it.

 

So the question really then becomes, what is the best way to chart a course for your business? And what time periods are relevant and important?

At Kong & Way, we believe that there are three critical periods that need to be planned for. So, let’s dive into each one and find out why it is important and how to go about charting it.

 

The One-Year Business Plan

The one-year business plan should be a relatively straightforward matter. Take a snapshot of the last 12 months of performance, identify what you would you like to do better at, and work out what is needed for that improvement. While the writing of the plan itself can take some time, the identification of the goals should not be nearly as taxing or disheartening as you might think.

As the business owner, it is also critical to listen to your team. Hear what they believe can be achieved and then collaborate with them to get the best out of them. Whatever the goals, you are not going to deliver them on your own. So making sure you are setting goals and aligning your team with them is important. It’s hard to captain your vessel across the seven seas if you don’t have a crew to man the deck and prepare the cannons as Captain Jack Sparrow knew all too well.

 

The Five Key Inputs to the One-Year Business Plan

 

#1. Keep it simple.

The KISS Principle applies here. KISS stands for “Keep It Simple, Stupid”, meaning the simpler you keep things, the easier they are to be achieved. This means your business plan has to clearly communicate the next 12 months of objectives. The longer and more complicated it is, the less likely your team are to read it, much less to deliver the objectives contained within.

 

#2. Set goals WITH your team, not FOR them.

It should go without saying but I’m saying it anyway; If you set goals for your team they are significantly less likely to achieve them than if you set goals with your team. Really that should be enough incentive to collaborate with your team.

 

#3. History is a guide only.

Use the last 12 months of data to support the goals you are aiming for in the next 12. Be careful though not to be unrealistically ambitious here. Setting realistic goals and aligning your team to those goals is critical to your success.

 

#4. Use a simple template.

Don’t reinvent the wheel. There are good business plan templates available out there so don’t waste time making one of your own. Follow the template you choose to make the process as efficient as possible.

 

#5. Write it to use it, not to store it.

Perhaps the most important reason to keep your business plan simple is so that you can actually use it. So often, the business plans we put our time and effort into just end up sitting in a filing cabinet until the same time next year. Referring to your business plan regularly increases your chances of achieving the goals you set out to achieve.

 

Work with your team during the business plan processes.
Set goals with the team, not for them.

 

The Three-Year Business Plan

In essence, the three-year plan is an extension of the foundation you created in the one-year plan. There are a number of reasons for planning more than one year in advance. Among other reasons, it:

  • Provides a degree of certainty for the team
  • Allows you to forecast future revenue and capital or funding needs further in advance
  • Gives your investors and financiers comfort that you have a longer term vision
  • Helps you stick with a course and build on momentum.

In a three-year plan, you will need to focus less on the individual department goals and objectives and more on the overall business direction. Longer term plans should really be designed to give you the flexibility to respond to new opportunities while at the same time helping you to stay focused on your goals.

 

Consider your Critical Success Factors.

It is helpful in any longer term business plan to break down some of the bigger goals by scheduling to achieve some interim Critical Success Factors (CSF). These are basically milestones that your business needs to reach that are (as the name would suggest) critical to the success in achieving higher goals. In a very simple sense the following example might explain how they work.

Primary Goal: To Acquiring a new company delivery van

Critical Success Factors: Complete budget to ensure available capital, shortlist vehicles that fit in the budget and meet the requirements, lead time for the vehicle to be available.

A CSF is a step or stage that is critical to achieving the end goal. If for example, you didn’t do the budgeting exercise and just ploughed ahead to find the most suitable vehicle anyway, you might well come to decision time only to discover you can’t afford it.

 

The Five-Year Business Plan

Personally I think the most difficult part of a five-year business plan is to keep it realistic. Everything changes and evolves so quickly that writing something today that will be relevant in 5 years time is a big ask. What that means is the five-year plan needs to be more of an overview than anything.

Related: How to set realistic goals that align your team

Not only that, but it needs to be fluid enough to adapt to technology changes, industry changes, legislative changes and the fact that we might well experience changes in government and tax legislation in any given five-year period. That makes it hard to forecast what the landscape will look like.

 

Regularly review your five-year business plan.

Those concerns do not mean that we should not be planning for five years’ time, though. The key is to make sure you review the longer term plan regularly enough to adjust it for impacting changes. If you track those changes over a five-year period then it is likely that at the end of the five years, things will be different to how you forecast them five years earlier. However, because you kept monitoring and reviewing along the way, you will have been able to adapt and adjust as you go.

One other significant difference with the five year plan is that the strategy, designing and forecasting take longer. The research around market trends, buyer behaviour and technological changes all have to be more in depth. And that takes time.

Generally, when you are undertaking a longer term business planning process, I find it is a good idea to do it after you have completed the shorter term plans – but not immediately after. Give the team a break and a chance to get their one-year plans underway and in operation. When they are fresh and ready to go then you can start the longer term plans. It is a different level of thinking that is needed for the longer term strategy.

 

Beware of the concealed trap!

When you try to undertake the creation of a one-year, three-year and five-year plan set in one fell swoop, you will almost always run into the same trap. That trap is what I would refer to as team strategy fatigue. Your team, and probably you, get to a point where they simply cannot stand the idea of spending another day strategising about the future. There are two simple reasons for this.

 

#1. Planning versus Doing

While you are busy locked away with your team designing the master plan for the future, your team are not actually doing anything in an operational sense to get you there – and they know it – and you know it! Frustration is just around the corner at this point. Your business needs to achieve, your people need direction and your managers need to deliver their working objectives. There is a balance between planning strategically and doing things operationally to keep the home fires burning.

 

#2. Strategy Fatigue

Related to the previous point is strategy fatigue. The simple truth is that there is only so much time people can spend talking about future plans and forecasts. We all need a little variety from time to time. So, be careful not to eradicate your team’s positivity in the future by replacing it with motivational equivalent of mental fatigue.

 

A Final Note

As a final note, we often meet business owners who believe they need to have the answers for their team. That if they do not know what the next five years should hold that they are somehow a failure as a business leader. The most important strategic skill a business leader can develop is knowing when to bring an expert in to help.


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