Long term planning is an oft-ignored aspect of running a business. Why is it so ignored? Because people think…
- It’s not useful.
- It’s not possible.
In this article, I’m going to explain why long term planning is both useful and possible, and also provide some practical advice about how far ahead you can look when devising your long term plan.
Is long term business planning useful?
The main reason planning and long term planning in particular aren’t practiced by many small business is the perception that it’s not useful.
Every business needs to know that it can cover its costs in the next 12 months, but looking beyond a year is just too great an opportunity cost. Better to spend the time making money, right?
The reality is you need to be planning for the future as well as concentrating on the business in hand. Long term planning serves several purposes. It provides information on:
- How well the business’s goals can be achieved
- The degree of financial risk the business will have to take on
- How external factors like inflation could affect the business
- When the business should make strategic decisions, such as attracting new investors, changing location, business model or ownership.
But there are other benefits to long term planning as well:
1. Reassessing the business
There’s an unhelpful attitude among some business coaches that changing your goals, your aims or the plan for your business is a great sin. “Power on through and stay true to your vision” they’ll say!
While there is something admirable about this mindset, it usually works best when you’re already a millionaire (doesn’t everything?). If your business is falling behind and you can’t or won’t address its problems by changing direction, then bad things can happen.
Reassessing the business is a part of planning. In fact, it’s why planning is a continuous process. Plans should not be set in stone, they should be flexible and adaptable, while keeping long term goals in mind.
2. Direction to guide decisions
Having a long term plan provides a yardstick by which to measure your business and how well it is progressing towards its goals.
By having a plan in mind you can ensure that the business decisions you make further the cause of that plan, rather than unintentionally undermining it.
For example, building a new product line may seem like a great idea, but supporting it in the future could divert resources away from the business’s ultimate goals.
3. Team awareness of goals
Giving your team confidence that the business is moving towards its goal, steadily but surely is another benefit of having a long term plan.
Awareness of the business’s long term goals can help everyone use their energies to the fulfilment of these goals.
Is it possible to plan long term?
Some say long term planning just isn’t possible for their business. And I have a degree of sympathy with this. How can I predict what will Actually be happening in my business in 5 years time, much less 10 years time?
After a certain point, isn’t long term planning just sticking your finger in the air and guessing which way the wind will be blowing a decade down the line?
But planning isn’t ‘knowing’. Planning in the long term is about making reasoned assumptions and following these assumptions through. At minimum, you’ll have plans to represent best case, average and worst case scenarios for your business.
Look to the business’s past performance as evidence for its future performance but do not rely on this.
While in some markets sales can continue to grow seemingly without end, many businesses reach a point of market saturation, where there just aren’t more customers out there for the product you are offering, or in the place you are offering it.
The judgements you make around sales growth or client retention are going to be critical for your long term plan so make them realistic.
How far into the future can you look?
If you agree that long term planning is both useful and possible, two questions remain. Just how far ahead can, and should, you be planning?
In some sectors long term planning is not just encouraged – it is required. UK housing associations are required to submit 30 year financial reports every year to their regulating body.
Investment firms and financial advisors have to consider the growth of assets and reduction of debts in terms of decades rather than months. Personal financial advisors need to draw up 70+ year plans for their clients pensions and investments.
These organisations make taking the long view an important part of their planning, and show that exceedingly long timescales can nonetheless be planned.
What’s the purpose of your business?
But what about your business? If you are the owner of your business, you need to decide what the purpose of your business is, as this will determine how you approach planning its future.
Is it going to fund an early retirement? Is it going to grow from strength to strength and become a much larger business than it is now? The future you are planning for your business should determine the kind of timescale you are planning for.
In general, a long term plan should be 10 years or more. This is ample time to explore the future of the business, and test different ideas for how it could progress.
As well as considering the purpose of the plan, think about the elements of the business that you can rely on holding true in the future.
At the simplest level, some businesses are likely to continue to offer products or services that are in demand long into the future, while others will need to adapt or change their offering over time.
For example, it is likely that a cleaning business will still be in demand in 10 years time. It is likely that a legal firm or financial consultancy business will still be able to attract clients in 10 years time. And it is likely that we’ll all still be buying computers and paying electricity, gas and water bills, tax and national insurance in 10 years time.
There are certain things that you can take for granted when planning for the future. You have to in order to plan at all.
What assumptions can you make when planning?
The further you look to the future in your planning, the fewer of these assumptions you can necessarily rely on.
Maybe in 50 years time androids will have cornered the cleaning market and your search engine will be able to give you an immediate, binding conclusion to a legal dispute.
Even so, you can plan your cleaning business or your law firm for as long as you think it’s going to be around. The assumptions you make are “just” assumptions, certainly – but as long as they are evidence-based, reasonable assumptions they offer the best picture of your business’s future available.
Long term planning is not the be all and end all of planning – but an important part of the financial picture of a business.
About the author
This article has been written exclusively for ByteStart by Robin Booth of Brixx.com the financial forecasting app that turns your ideas into numbers. Robin is a regular ByteStart contributor, and other articles he’s written to help business owners to get to grips with forecasting include;
- What I learned by going bust
- Short term planning – how to balance your time and detail when planning
- Why financial forecasting is important for startups, and how to do it painlessly
- A beginner’s guide to financial reports, and what they reveal about your business
- Financial planning – 6 steps to a successful plan
- A beginner’s guide to testing your financial plan
Business planning – Further Resources
- 10 Do’s and Don’ts of writing a business plan
- If your startup doesn’t need funding, your business plan only needs these 4 things
- Writing a business plan to raise money from business angels
- Perfecting your pitch: 10 Principles for entrepreneurs
- Harness the “Power of Three” to nail your pitch
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