I’ve done the budget for 2010, what else should we do in preparation?

The other day an enormous Excel spreadsheet arrived in my inbox.

“Here’s our annual plan,” announced the email proudly “what do you think?”

I looked at the mass of numbers; the only words I could find were the column titles.

“I think this is the budget” I replied.

“You’re right, it is the budget. Our annual plan is to make the budget.”

“But what steps are you actually going to take to make the budget?”

“Oh, not sure yet.”

It’s May. CFOs are buried in 2010 budgets. CEOs are muttering about containing costs and steadying revenues. Plans are being born.

Or are they? A budget isn’t a plan; it’s simply a financial interpretation of a plan. If you are serious about making 2010 a good year, you need to be serious about planning.

It’s not too late to get it right, but you do have to start now. Here’s how:

• Book an annual planning day in the diary of your whole management team.  And don’t let anybody wriggle out; despite what they may think, nobody is too important to the daily running of the business to attend this session.
• Hold the annual planning day offsite. If you don’t do this you will lose half the team to their computer. In my experience an offsite held in a little cottage half way up a mountain works very well – not least because the iPhone/BlackBerry doesn’t. The best offsites start with dinner and a sleep over the night before, thereby getting all the social stuff done before the day itself.
• Start the planning day with a recap of the business foundations (purpose, passion, profit driver, brand promise and core competencies) and strategic intent (“big hairy audacious goal”, five year targets). If you are a bit rusty on these I suggest you hold a strategic planning day in advance of the annual planning day to work these up.
• I think a high level SWOT analysis is a useful tool next. Not only does it get everyone in the right frame of mind for planning the business, but it also gives people a chance to air their concerns.
• A review of the year just gone is a useful next point on the agenda. But just cover off three highs and lows. If you want to do this in more detail than I suggest you do so over dinner the night before.

Now we are into the planning bit. First up I would start with the question “what do we want to achieve by the year end?” While you want to end up with measurable goals out of this section, leave it quite open to begin with. You want to unearth goals such as “new product X on market” which you won’t do if you head straight for goals around revenue, profit and ROI.

Decide on, say, five measurable goals. Maybe three around the financial metrics (revenue, profit, working capital) and two around something that is important to the future of your business but will not drive profit this year (such as foot in the door with “A” list clients/new geography, new product).

Once armed with the goals, spend some time nutting out the five strategies you will adopt to get there.  Remembering that after the planning day there will be no action unless someone is held accountable, I would allocate an accountable person to each strategy right now.

Next take the five core strategies and work them up into tactics for each quarter. You will probably want to focus your effort on tactics for quarter one, just noting for future quarters when you will start those things that will be kicked off later in the year. You can complete the tactics for the subsequent quarter at your next quarterly meeting. You do have one, don’t you?

At the end of the planning day you should have agreed on five annual goals, five core strategies for the year, and a handful of tactics for the first quarter. You can quickly document this in a one-page spreadsheet.

You are probably now thinking that this is a lot to cover in one day, and I tend to agree. I regularly recommend that the “annual planning day” be a two-day event but I also realise how hard it is to get the management team away for one day, let alone two, so it’s your call.

What next? Well there is much to do to bring your annual plan to life in the business. But first you can give it to the CFO so that he can work on creating a budget that reflects the plan, rather than a plan that reflects the budget.

Julia Bickerstaff’s expertise is in helping businesses grow profitably. She runs two businesses: Butterfly Coaching, a small advisory firm with a unique approach to assisting SMEs with profitable growth; and The Business Bakery, which helps kitchen table tycoons build their best businesses.  Julia is the author of “How to Bake a Business”  and was previously a partner at Deloitte. She is a chartered accountant and has a degree in economics from The London School of Economics (London University).

To read more Profitable Growth expert advice, click here.