The power of the three-year business plan

While many businesses have a stated mission and vision, they often lack a clearly laid out plan. Others may have a plan, created upon startup, now gathering dust on a shelf.

A well thought out three-year plan means you have a strategy to grow your business. Frequent evaluation of that plan helps your business stay focused and make necessary pivots. It’s never too late in the year to assess your business and make changes that will produce powerful results for this year and the years to come.

As a business owner, evaluate — what are your impressions of how last year went? Were you satisfied? Do you want to do better? Did you miss your goal on net income? Did some customers not buy as much as you expected? Did you have unexpected expenditures?

Let us look at a planning model that will help you develop a three-year plan built to achieve your net income goals.

Plan at least three years out:

Developing your three-year plan can be done in a few simple steps. First, set your revenue goals. This is what you would like to net for this year. Stretch yourself to do better than last year. Build revenues from your best customer segment and then your second and third-best customer segments. Separate your revenues by best to worst customers to provide insight into how you can reach and retain your best customers in order to grow your sales.

Next, estimate your costs of goods sold. Are your costs going down or up? Develop some strategies to reduce the direct costs of making your products. Reducing costs for products will increase your margins. Margin is what is left after you deduct cost of goods sold from your revenue. If your margins are increasing then it is easier to increase your profit.

Next, find ways to decrease your overhead expenses. The best way to reduce your overhead expenses is to budget an overhead expense by percent to revenue. Have goals to reduce overhead expenses. Get your employees involved. One company gave out gift cards to employees who had a decrease in unbillable hours for the month. It was a win for both the employees and the company.

Regularly review the plan:

Now that you have developed a plan, as the leader of your business, you should review your actuals against your set goals for the year on a regular basis. Prioritizing time weekly and monthly to review your goals will help you quickly identify issues that are preventing you from achieving your goal. Setting goals and reaching them will give you a sense of accomplishment and progress in building your business. As you gain confidence in meeting your goals, you will continue by setting even more challenging goals that will increase your profitability.

Businesses that develop written plans and goals, and continually review the plan are more successful than businesses that have no plan.

The planning cycle is a business’ greatest tool for meeting annual sales targets and net income goals. Without annual goals for your business, your company will not have the clear direction it needs to perform at its optimum level. You may be operating your business with a lot of activity, but it would be without direction for you and your employees.

A friend, while starting his business, had questions on sales, material and labor costs, and how much to spend on marketing his products. Everything was in his head but was not written down on paper. He developed a three-year planning model that included sales projections, material and labor costs, and overhead expenditures. Through this process, he was able to identify problems that inhibited the company from growing. His three-year plan clearly showed his flaws in planning. This gave him the insights to make changes that doubled his revenue in one year.

Evaluate and adjust the plan:

By looking at your cost of goods sold, you can strategize how to increase your efficiency. Were your profits down because you were less efficient last year than in the prior year? Did your company experience a higher employee turnover this past year leaving your company with fewer experienced employees? Have you developed a strategy to become more efficient this year? Start by planning out your labor costs for a year and set a goal on keeping your employees for optimum efficiency. Continue to work on your labor efficiency and set goals to manage labor costs. You will see your margins increase.

Having a three-year plan and clear goals will help you stay focused on your business. This level of focus will enable you to track the effectiveness of your daily activities. When you stay focused, you start to see the results of the planning and execution of your business model to reach new successes. The three-year plan brings clear direction to how you are going to run and lead your company. Putting the numbers down on paper gives you a blueprint for what you need to do to have a successful business today and, in the years to come.

By following these strategies and being proactive, it is possible for your small business to grow in the upcoming year. Review your goals weekly, adjust where necessary, and you will succeed.

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Dennis Weed is a Business Coach at North Idaho College’s Small Business Development Center. The NISBDC offers resources and training, no-cost business coaching, and serves the five northern counties of Idaho. Its mission is to accelerate business in the community through business resources, training, and no-cost, one-on-one coaching in leadership development, strategic planning, financial management, and more. Register for classes at NISBDC.com, or call us at 208-665-508.