BY ROBYN GOLDENBERG
Question: I’m not sure how to plan for the future—I’m almost at “what’s the point?” since the past year and a half have been so unpredictable. Expectations are sitting on my shoulders, my employees are stressed, and I feel like a wave is about to come crashing down on my business. How can we plan and set goals if we don’t know what to expect?
Thoughts of the Day: It can be tough to plan and set business goals when times have been so unpredictable for a lot of small businesses. There are numerous factors that are going to influence business goals and expectations for the coming year. Putting goals and expectations down on paper can help you feel like there’s a little more control in the outcome of 2022. It’s important to plan for the worst outcomes but expect the best—and stay optimistic.
Ask yourself the following questions:
• How am I going to rebuild?
• What kind of personnel will I need in the future?
• If I’ve had to pivot to new businesses, how much do I need to spend on marketing and sales?
It’s important to map out what the next 12+ months could look like. After a year like 2020 and the hot-and-cold recover in 2021, it is going to be easy to make a mistake and step into a black hole—which is certainly better to do on paper rather than having to live it out in real time. Planning is critical for business owners, especially since most tend to act on gut feelings. Adding the stability of setting goals can help to keep everyone moving forward and feeling productive.
An owner came to us for some planning assistance at the start of COVID. We worked with the client to map out their profits historically, looking specifically at revenue, COGS, gross profit, overhead, and net income in 2018 and 2019. After achieving good growth from 2018 to 2019, they started out 2020 strong—until COVID. We were able to coach them through last year by cutting operational costs, looking for higher-margin work, and attracting different kinds of clients. Through hard work and determination, this business owner was able to come through 2020 profitable, although at a much lower rate than previous years. And that was before factoring in any assistance that PPP gave their bottom line. Now our client is focused on planning ahead, setting goals and expectations, and being realistic.
The owner is optimistic because they’ve been able to find some new talent, which has helped them tremendously. But, as we laid out the map of how profitable they might be this year, we saw they could lose 20 percent in 2021. Fortunately, we were able to work through some solutions before it happened. The conversation of how to be more efficient and more effective might not have happened until later in the year, which could have impacted profitability for 2021 (making now a good time to start planning for 2022 and beyond).
But I’m Overwhelmed!
Some business owners may be feeling the opposite: “I’m already feeling stretched. I can’t possibly take on more work.” While that is a valid feeling to have, it’s not the solution. Feeling overwhelmed doesn’t mean to stop selling or trying. It doesn’t mean slow the workflow down or give up on your business goals. Sometimes you have to take a step back and breathe, but ultimately as an owner, you need to dig into the operations and organizational structure. Here are some tips on how you can figure that out.
1. Set a goal for net income percentage for your company.
Our case study client’s goal was always to make at least 16 percent net income. Setting a goal for net income percentage first allows you to work backward and see where changes and adjustments need to be made throughout the rest of your organization. Figure out exactly what your net income goal means in terms of the overall cost of doing business, how much revenue you need to have in order to support that goal, and ultimately how productive your team needs to be to accomplish it.
2. When you spend time planning, you’re able to play with various financial levers to see what will affect profitability, and what the outcomes might be.
Revenue can solve a lot of problems. In the previous example, the owner’s first solution was to just sell more. As we played with that lever, we saw that it would have taken a 50 percent increase in revenue, which is a very scary proposition. It’s important to be realistic in your ability as a business leader, and in your team’s ability to both sell that much, and to sell to that rate only with good profitable customers—especially if you have a reduced team. Can your business absorb the extra work that comes with a 50 percent increase in sales? And can you do so effectively to not annoy your customers, make costly mistakes, or lose any good clients along the way? It’s often better to temper expectations in scenarios like these, and plan for a lower amount of sales and revenue.
3. Trying to grow your business or revenue too fast can be a risky game.
A 50 percent growth rate can be daunting in a non-COVID environment, so it’s important to be realistic. In the previous example, we worked with this owner to set their growth goals to a more reasonable 20-25 percent increase in revenue. After you solidify what growth rate you want to hit, it’s important to go back and identify what you need to tweak in your operations to reduce costs and ensure that those savings drop down to the bottom line, achieving the profitability goal originally set. Planning ahead will help you stay on track.
4. Setting expectations is about using metrics and planning tools to get to the heart of the business.
This includes thinking about the people and operations that you have, how you’re going to do the work, and how you’re going to make sure that everybody is communicating effectively to be able to get the numbers you want.
Look at what’s happening in your business sector and in ancillary industries and ask yourself:
• If you had to pivot, have you pivoted enough?
• Do you need more resources this year?
• How are you going to pay for them?
• Instead, should you be leasing them for a while to find out if they’re the right fit?
When it comes to your team:
• Do your people understand the pivot work?
• Are they on board and understand that this could be a permanent change?
• Do they need any training?
• Do they need any development support so that they can get better at doing what they’re doing now?
• Are there any people on board who might be heading for the exit now?
5. Be transparent with your team about how the company is doing, and what business goals you have for this year.
Employees are feeling the uncertainty too, and they may be wondering if they’ll still have a job in a few months. As you move people around and ask employees to take on new tasks, make sure that they understand any changes in their job description and what their new roles and responsibilities will be. Positive reinforcement will also help them to understand how well they’re doing.
They’ll need proper training and enough time to learn how to do these new tasks, with an ongoing training plan to build better skill at those jobs. You may find that some of your team have hidden talents that you didn’t even know about, which could prove beneficial as the company adapts to a new way of operating.
6. What if you had plans to sell the business, until 2020 happened?
Now that things are improving, maybe you’re reconsidering. There’s a lot of planning work that you want to be doing. Getting a valuation is a good place to start, and understanding what your business is worth based on the past few years will help you to assess how much you need to recover to build a saleable asset. As it’s important to collect growth and profitability trends pre-COVID, we recommend going as far back as 2016 or 2017 and using historical data to show potential buyers that—yes—COVID did affect your business, but that the operation performed at a different level before forced lockdowns. Planning out your recovery for the years ahead will also help show potential buyers that you’re still a viable and valuable business regardless of 2020.
7. What if you had plans to sell the business, until 2020 happened?
You don’t have to keep doing exactly what your business does now, or did before 2020. Ask yourself:
• What is a future buyer going to want from the company?
• How have their expectations changed because of having been through a pandemic?
• What makes us valuable in a post-COVID world?
8. Plan for the worst and expect the best.
Look at the marketplace in which you’re going to operate, and make sure that you are operating in more than one vertical market with more than one group of clients so you can do the same things that helped a lot of companies pivot successfully. Ensure you can move quickly from one group, product, or service to another, depending on how things play out. Don’t stay stagnant. Most importantly, don’t give up. If you have an entrepreneurial spirit, you can weather this storm. [CD1121]
Robyn Goldenberg is Director of Operations and Marketing for Strategy Leaders. She can be reached email@example.com.