Creating an Annual Business Plan is a Major Key to Success
Today is specifically geared towards business people and it’s designed to be a continuation of what we started talking about in the last episode. If you recall, we talked about the fact that at the end of the year, sometime between November and Christmas ideally, you need to be sitting down and analyzing how your last year went.
I mean, think about it. In any area of life or business or anything you do, it’s important to consistently go back and look at how previous things have gone so that you can plan for the future.
Doing an Annual Business Review Helps You Keep Score and Improve
I mean if you’re a basketball player and you’re shooting a basketball, imagine if you shoot a basketball up in the air but then you don’t get to see the basket.
You don’t get to see the results of whether it goes in or not. Imagine, could you possibly ever improve?
I’ve given this example before but think about it for a second. If you’re shooting a basketball and it’s going over a curtain and on the other side there’s a basket and you don’t know if your shot is short or long or right or left or just perfect, how can you possibly ever make improvements?
See, most businesspeople I would contend and most of the people I have coached over these years of coaching businesspeople I see, they literally are shooting a basketball but it’s going over a curtain and they have no clue what’s happening on the other end.
Why? Because they’re so busing doing. They’re so busy running around in their business that they never actually sit there and sit and look back. They say hindsight is 20/20, but only if you take the time, turn around, and look back.
See, if you’re consistently just looking at today, what do I do today to get through the day, you are never going to be able to succeed at your best because you’re not looking at what has worked in the past so you can do more of it.
And then what didn’t work in the past so you can avoid doing those things or changing your approach. That’s what this is designed to be.
Now in the last episode, we talked about the kinds of things you want to go back and analyze for the previous year and we talked about all sorts of things. Of course, financial analysis, which we’re going to get into much more detail in another episode.
We talked about human resources. Now of course, you could be a one-person company. If you’re a one-person company, you still have human resources.
Yes, in fact I would tell you that if you’re a one-person company, you need to have the most extravagant human resources department.
Why? Because your human resources department needs to manage all the different aspects of you. But if you’re a one-man show or a one-woman show, that means you are the accountant. You are the salesperson.
You are the marketing expert. You are the operator and the manager and everything else, and you better be able to keep track of all those different aspects of yourself.
Because if you’re running around doing everything yourself, I guarantee you there are aspects of the job you enjoy less.
For most entrepreneurs, sales is the part that they are the least interested. In other cases, it might be marketing. In some cases, it might be customer service or whatever it is – innovation – whatever are the areas that you have, you need to be consistently looking at these, whether these different parts are a different part of your body or these different parts are different people or even different departments.
So I can tell you in some of my smallest companies, I have a few people. I have one person say for sales, someone for marketing, someone for this, someone for that. In my biggest company, I have departments for all these. I have a department of up to 20 people who do nothing but sell.
I have a department of many, many people who do one aspect of a job. I have an accounting department with four people who do nothing but do financial stuff for me. So it depends; it doesn’t matter how big or small you are, you consistently need to be analyzing those things.
Using Your Annual Review to Create a Business Plan
Now let’s move forward now and talk about for today what we’re trying to get at here. Okay, now you’ve done that. You’ve looked at the last year and you’ve analyzed how things went.
The reason that information is important is that you are going to use the information you gained from this last part to now create a plan for your next year. And let me tell you, without doing this, you cannot possibly maximize your resources as a business owner.
You cannot grow your business consistently. You cannot reach your maximum potential if you’re not constantly going back, looking at what worked, what didn’t work, and then creating a plan for the future.
So today, let’s talk specifically about what types of things you’re going to be creating a plan for. And again I will remind you, this is something I have been doing myself every year for almost two decades.
Now early on I didn’t do this stuff. Early on in my career when I started my first business a quarter of a century ago, I wasn’t doing these things, and so I learned from books, I learned from seminars, I learned from other people.
But most importantly, I learned from making massive mistakes, falling flat on my face, losing my businesses in some cases, and losing a lot of money. I learned that every year, sometime between Thanksgiving and Christmas, I need to sit down.
For my smallest companies, at least two days; for my biggest company, up to a week, where I lock myself up in a room – a hotel room, an office, somewhere – where I do nothing but think about what worked and actually look at what worked in the last year and then create a plan for ultimate success in the next year.
The Annual Business Plan is the Blueprint to Success
So today, let’s talk about that. How do you create an annual business plan, which is a blueprint for success for the next year? That’s what we’re looking for. We’re looking for a blueprint.
See, when an architect designs a house, he or she creates a blueprint. That blueprint is then taken by the construction folks and they can actually go ahead and build a beautiful home based on that piece of paper. That is what we want to create for you.
See, what I want you to do is sometime between Thanksgiving and Christmas, I want you to be the architect of your business. Then, January through December of the following year, I want you to be the one who actually gets in and makes these things happen.
Now if you have employees, you do it through your employees as well as yourself. If you’re just a one-person show, perfect – you do it yourself.
But the key is you must have that blueprint because without it, how can you possibly be able to succeed the next year? In fact, do you even look at the human body, whether you believe in God or whatever your spiritual beliefs are, think about it.
The human body exists and is built around a skeleton. See, that physical skeleton must be there first so that all these other things can attach to it: your muscles, your arteries, veins, and all the different aspects of your body would not be able to be held together if you didn’t have a skeleton.
So now let’s create that skeleton, that blueprint for ultimate success for next year. And when we’re doing that, we’ve got to go through a couple of different areas.
Creating the Blueprint for Your Financial Plan
Number one, the most important place to create a blueprint for next year is your finances. You must have a financial budget, specifically an expense budget for next year. You need to be crystal clear on what you’re going to spend money on.
Now, if you listened to what we talked about in the last episode, we talked about doing an analysis of last year’s finances. Now again in a future episode, we’ll dig even deeper into that. But I think the basics of it you already understand.
We need to look at how we spent money, where we spent money, how much money we put into (for example) marketing, how much money did we put into innovating and creating new things, how much money did we put into simple things like business cards and stationery and junk like that?
How much money did we pay for parking when you were out having meetings?
How much money did you spend on travel?
Simple, simple things. And again, it doesn’t matter if you’re a small company or a big company. All those same things still apply.
In my case, I have a company that has just one employee and I have a company that has over 150 employees. The rules are exactly the same.
The numbers are different, the numbers are bigger in some cases, but the rules are identical. You must track all of your financial things in something like a QuickBooks of course.
And then what you’ve got to do is budget for next year, so we start with that.
How much money are we planning on spending next year? And of course as you’re doing that, you’re going to first need to look at what you were at last year, and then you create a budget.
The beauty of creating that budget is you now know where you stand so you can make important decisions. When you look and say, “Wow! I spent $2,000 on something silly last year,” you can cut that back and now that money could be taken, and it can go into your pocket so you can have additional profits next year.
Or, that money can be taken and put towards new projects or towards hiring people or whatever else. And as you’re making these decisions of where you’re going to spend money, an important question is going to come up. You might say for example, “I’m going to invest $10,000 in online marketing this year.” If you’re going to do that, now you have to ask yourself a question: “What are my expected returns from this?” See, it’s when you start asking those questions that you really set yourself up for that ultimate success.
So, let’s say we’re going through these finances and the first thing we do is we create that budget. Now in some cases, your budget is going to depend on what you’re going to do. Where are you going to grow? Where are you going to take the business? And then what’s it going to take to get there? That’s where we go next.
Most People Underestimate What they can Accomplish in a Year
See, it’s easy to make claims about all the fancy things you’re going to do next year. Something is very, very important that you need to understand. Most business owners –and in fact most human beings in general – when you ask them what they think they can accomplish in the next year, they massively overestimate what they can do.
Hear me on this. When you ask someone what they can accomplish in the next 90 days or year, they will typically massively overestimate what they can do. But when you ask someone what they can do in five years or 10 years, they massively underestimate what they can do.
The reason for it is very simple. It’s easy to sit there every November or December if you’re just chilling with your friends and relaxing and having a beer, it’s very easy to say, “Next year, I’m going to double my business. Next year, I’m going to buy myself a Lamborghini. I’m going to be rich. I’m going to be a millionaire.”
Well, let me ask you a question.
If you’re not already a millionaire – and I know many of you listening to my podcasts out there already are, but I’ll tell you the same thing applies to you.
If you’re not a millionaire yet, how many years have you gone by telling yourself, “Next year, I’m going to be a millionaire.” See, if you’ve gone year after year saying, “Next year is my year… Next year is my year…” and it’s not happening, it’s probably because your approach doesn’t work, and that’s what we’re here to talk about today.
See, you can be a millionaire next year if you’re not already a millionaire. And if you are a millionaire already, that’s great! Now let’s get you to that next level: $10 million, $100 million, or more in net worth. Or maybe some of you, your goal next year is you want to be a billionaire with a B – yes! If that’s the case, then we must create a plan for success.
An Example for Setting Detailed Financial Goals
So here’s what we’ve got to do then. We’ve got to take a look at what it’s going to take. It’s easy to sit there and say, “I’m going to double my company next year.” Okay, you’re going to double the size of your company.
First of all, what does that mean? Are you going to have twice as much revenue? Twice as much profit? Twice as many employees? Twice as much square footage? What does doubling really mean, and why double? People love these round numbers.
You know, “I’m going to grow by a factor of two.” Well, why? Why not 1.8? Why not 2.3? Where did this doubling come from?
So if you want to double, great! Let’s do it. But let’s have a plan for what exactly it’s going to take to get that done. What we do is we start to get crystal clear on this stuff. What I can tell you is this: when I coach my clients over the last couple of months of the year, every year we make a plan for next year.
In most cases, we end up lowering their expectations of what’s going to happen next year. That’s because when they start looking at the reality of what it’s going to take to get the results, most of them aren’t willing to do it.
Now in some cases, we do quite the opposite.
They tell me they want to double the business and we look at what it’s going to take to double, and as they’re looking at it, they’re like, “You know what? I’m ready to triple this business! I can quadruple this business!” They didn’t realize that so many of the things that they want to accomplish are right there. They just have to be willing to take the right steps.
So you see a business owner, for example, who spends only two hours a week selling and then he realizes that, “Oh my gosh, all my sales are coming from those two hours,” and they don’t like to sell. I say, “Well, what if you were to spend two hours a day selling? Could you do that?”
They say, “Well, it’s really hard,” and then I show them on paper how by doing that, their dreams of getting that new house, that new car, creating that incredible life for their family, having financial freedom – all of those things could become a reality in 12 months. Suddenly, they’re ready to sell three hours a day if that’s what it takes, and that’s what this is all about. We’ve got to make sure you do that.
Now in my events where I sit there and we create the business blueprint, I have it between Thanksgiving and Christmas.
When I do this with my coaching clients one on one or in my events, we do this where we create a blueprint. You actually sit there in that room and we create this. If you’re going to be at one of my events, awesome. Learn it now so when you get into that room, you are ready to do it and you’re ready to be on fire as we’re doing it.
If you’re not going to be in that room, well then you must schedule yourself a time where you’re going to spend a minimum of two days. If you’re not directed and you don’t have someone helping you – in my events we do it in two days.
But if you’re going to do it on your own, you probably need three or four days where you lock yourself up in a room somewhere and you’re focused on this stuff because you’ve got to do it all on your own and you don’t have as much directive.
But this podcast episode, you can listen to it on that day and it allows you to do that.
What Sales Targets Will You Have to Hit to Achieve Your Financial Goals?
But the key is what is it going to take to get the things that you want? The first place you start is, “What am I going to have to sell?” See, in every single business in order to generate revenue, you have to sell. So the question is, “What do you need to sell and how much of it do you need to sell to get to the goals that you want?”
So let’s look at where we’ve come from. We’ve looked at what kind of financial success we had in the last year. How much revenue we had, how much expenses, and then how much net profit – the very, very basic level – at least we know those three numbers. Now we decide next year how much money we want to make.
Typically, when I say, “How much money do we want to make?” you’re concerned about your net profit. What is the bottom line that you get to walk away with? So we’ve come up with that net profit number and now you know, “Okay, I want to make half a million dollars in net profit. I want to make $2 million in net profit or $50 million in net profit.” I don’t care what that number is, but we decide that.
See, now we have to take that number and we have to work it backwards. If you are going to have a half million dollars in net profit, how much in total revenue are you going to need to have? How much extra costs are you going to have? And how do you get there?
Sometimes, you can increase revenue and even double revenue, but it doesn’t necessarily double your profits because you’re taking on new expenses that might be more expensive than what you’re already doing.
Other times, you can double profits without even doubling your revenues, meaning you increase your revenues maybe by 25%, but that doubles the bottom line. Why? Because you’re tapping into resources you already have. See, all of these things can only be done if you’re sitting down and analyzing the business.
Most people forget that business is nothing but a science. There is a science to it and I’m a scientist. I’m telling you from Day One when I got into business, I treated it like a science, and I was shocked to find how so many business owners don’t understand that it’s a science.
What we’re going to do here with you then is you’re going to sit down, and you need to look at your last year’s financials, then think about where you want to be next year.
Once you create your goals for what kind of profit you want to have, we work it up the financial statement and now we go to the top. How much top line of revenue are you going to need and then what are your expenses going to be like? Then from those expenses, we create next year’s budget.
From that revenue goal, meaning the total sales you’re going to be bringing to the company, now we need to create a sales goal. The important thing with the sales goal is to decide what you are going to sell. Are you going to sell the same stuff you sold last year, or do you need to sell some new things?
Are you going to sell at the same price, or do you need to increase your prices, or do you need to decrease your prices? We determine product or service lineups. We need to look at all of these different things and create that plan.
Now, once you’ve created a plan then for what you’re going to sell next year, the other thing is look, there’s 12 months in the year.
It’s not like in January if you’re going to double your company, I doubt very much in the first month you’re going to double it. So the first month, you’re going to have to have a ramp-up period and we’re going to work together on that. Often, what people don’t realize is that if you’re going to double your company by December of next year, your business might actually be triple the size it is today.
Why? Because if you double the year, that means the average of the year you’re twice as big. But I can’t imagine from December of this year to January instantly doubling.
Most likely, December is maybe a 10% increase. Let’s say February then is a 20% increase, then a 30%, 40%, 50%, and 60%.
Realize that if you just keep going up to the point that you get to 100% increase and you’ve doubled, your annual numbers haven’t actually doubled. So what you really need to do is go beyond that.
Something as simple as that is something a lot of entrepreneurs miss and so in my annual planning sessions for my business owner clients, what we do is we actually create a quarter-by-quarter plan and then we even break it down to monthly with what? Places where we can go and check in to see how we’re doing.
See, you need to have those check-ins in place so that you can confirm that you’re on the right track. If you think about it, a runner who’s going to run a marathon is running 26-plus miles.
They have mile markers all along those races and what they’re looking at is they know that by Mile Marker 5, for example, they need to be at around a certain time.
And if they’re slow, then they know that they need to speed up. Or if they’re going too fast sometimes (believe it or not), they know that they need to slow down because they know that if they’re not on the right timing schedule, they’re not going to be able to finish this race off the right way.
That’s what we’re going to create for you, so you need to create then what kind financials you want for next year, what revenue, what expenses, what bottom line, and then what we do is we break it down into what you need to sell and how much of those things you need to sell, and how much you need to sell those things for. See, all of these are critical steps.
Now, if you’re listening to this and you’re going, “My gosh, Arman! This is a lot of work.” Yes, it’s a lot of work. Having an incredibly successful business is a lot of work, and it’s a lot of planning, it’s a lot of deciding what you’re going to do so you can be on the right track.
Achieving Sales Targets Requires Marketing Targets
For example, the gentleman who runs this podcasting service who helps me with these podcasts, he has a business. What he does is he creates podcasts for people. By the way, any of you who are interested in a podcast, you should reach out to Apollo and talk to him.
But the thing is Apollo can only grow if he has a plan for how he’s going to grow. See, if next year he wants to have double the revenue for his podcasting service, it means he’s going to have to go out and get more clients. Maybe instead he can just sell more to the clients he already has.
So maybe he creates a package where he comes back to me and says, “Hey look, here are the things that I can do for you in addition to what I’m already doing.”
But he has to decide where that extra revenue is going to come from, and that time is right now to decide what you’re going to do for next year.
Of course, you first need to analyze where you’ve been so you can have that 20/20 hindsight and then plan for that next year. That next area is the sales goals and sales targets.
How much, what, where, when – all of that stuff needs to be figured out. But sales without marketing is a complete miss, because most of the time you cannot possibly sell without appropriate marketing campaigns.
What you then need to do is create a specific and well planned out marketing campaign, which is going to include potentially online marketing, offline marketing, social media marketing, email marketing.
All of these different things, you need to decide how you’re going to do it and then you’re going to need to make a decision. Are you small enough where you do your own marketing?
Is marketing something you delegate to one of your employees?
Or are you going to go hire a marketing company? Well guess what? If you’re going to go hire a marketing company or you’re going to hire someone to come in-house and do your marketing, then what you’re going to need to do is go back to that financial budget for next year and enter a line for the marketing that you’re now going to do.
See, it all works together. The key is you make one decision and you make adjustments everywhere else. Now maybe you can’t afford to start a marketing campaign today.
That’s okay. Maybe you schedule it to start in April or in June, but guess what? Then your sales targets better match that. I don’t want to see you saying that in January you’re going to double sales but you’re not starting your marketing campaign until June.
See, it doesn’t work, and most people run a business like that where every month they just come in and they’re chugging away – they’re always just chugging away, and that doesn’t work.
You’ve got to stop at least every year, and as you’ll learn later, we actually do this every quarter and then we do a smaller version of it every month, then we do a really, really tiny version of it every week, and a very, very, very small version of it every day.
This becomes a plan that is going to ensure success for you. That’s why every company needs a business plan. But what people think is that you create a business plan once and then never go back and look at it again. No, you create a business plan, you then recreate your business plan once a year, and then you rethink and realign with your business plan once every quarter and then more often from there.
We are going to stop here today. Check out part 2 to finish creating your annual business plan.