DO:
Base your budget on specific business
improvement plans.
DON’T: Create a budget unless you’ve got
specific ideas for improving results.
Too often management teams create budgets as if financial improvements will
happen by magic – without specific improvement plans. Then they wonder why
they never make their numbers. That’s because starting with the budget is
like the tail wagging the dog. Your plans for the business are where you
should start.
First, decide what you’re going to do to improve the business. Perhaps you
plan to win more customers, add new products, or negotiate for lower costs.
Those actions will produce certain financial results. Guesstimate the
changes in revenues and costs you expect to see from your improvements.
Then, put those numbers in the budget. That way you know your budget
reflects your business plan.
Frankly, if you don’t have specific actions planned to improve your
business, why bother with a budget? After all, the value of a budget is to
help you determine whether your improvement plans are working or not…and if
not, to help you diagnose where to change your approach.
A red flag: It’s a normal part of the budgeting and planning process to
tweak the numbers if you feel early estimates were based on overly cautious
assumptions.
On the other hand, when’s the last time you beat your budget?! Be honest
with yourself. You know if you’re fidgeting with the numbers just to get the
answer you want. That’s a recipe for financial disaster.
Tip #2
DO:
Base your business plan for the year on the strengths of your business.
DON’T: Ignore the weaknesses of your business.
Knowing the strengths of your business also means acknowledging its
weaknesses.
Say your plan for this year is to win more new customers. If you have high
staff turnover and the truth is that they never know anyone’s name, don’t
develop a marketing plan to win new customers that emphasizes great service.
You won’t fool anyone, and you’re guaranteeing disappointed customers.
That’s no way to make your numbers!
Perhaps the strengths of your business lie in other areas: plenty of free,
well-lit parking. Super-clean facilities. The latest equipment. Terrific
product variety. A great price without sleazy sales pressure. If you don’t
have the latest equipment, perhaps your strength is caring personal
trainers, or super-supportive weight loss programs. Whatever it is, always
know your strengths and play to your strengths.
Tip #3
DO:
Check key assumptions against reality.
DON’T: Rely exclusively on published price
lists, last year’s budget, and other hypothetical data.
For example, a common budgeting mistake when predicting revenue is to rely
on your published prices. But many businesses consistently discount or
negotiate lower rates in practice.
If your “rack rate” for a health club membership is $49, but you always
offer promotional pricing that drops it to $39, you’ve got to use $39 in
your budgets. Trainers, therapists, coaches and other professionals who bill
hourly should take a close look at their client list. How many clients are
actually paying your official rates?
Tip #4
DO: Look at the track record of your business.
DON’T: Assume that everything will go according
to plan.
Most improvement plans cost more and take longer than originally expected.
Look at your budgets, plans and actual results for the last two or three
years. How do your results compare to your plans?
If your business always falls short, dig into why. And at a minimum use more
pessimistic budgets so that you’re less likely to be caught off-guard as the
year progresses.
Tip #5
DO:
Know which types of customers are most profitable and why.
DON’T: Think of all customers as the same.
Your plan should focus on winning and keeping the kinds of customers who’ll
turn into your most profitable, long-lived relationships.
A common mistake: spending big to win customers who’ll decide the grass is
greener in a few months. Long-term customer relationships are almost always
the most profitable. It’s far cheaper to keep a customer than to win a new
one. Plus, a single loyal customer will generally buy far more from your
business over, say, three years than three new customers who each stick
around for only one year.
Another common mistake: a mismatch between the kinds of customers you want
and the way you’re spending your sales and marketing dollars. For example, a
postcard campaign in adjacent neighborhoods is probably not the best way to
attract clients with special medical concerns to your personal training
studio. Mass media advertising is not the best way to find executives with
hectic travel schedules.
Tip #6
DO: get outside perspectives from trusted
colleagues and advisors.
DON’T: rely
exclusively on your opinion and your management team’s take.
Every business plan and budget benefits from an outside perspective. Ask
trusted advisors to take a look. Run your plan past your accountants and
attorneys. Look for people with experience in running other kinds of
businesses.
Seek out skeptics. You may miss out on helpful insights if you only show it
to people that you know agree with your take on things.
One tip: when people poke holes in your plan, ask them for their ideas about
how to fix it. You may not follow all (or any!) or their suggestions, but
they may come up with good ideas that you hadn’t thought of. That’s
especially true when they’ve had experience with other businesses and other
industries.
Tip #7
DO:
make your business plan actionable.
DON’T: make it a laundry list of possibilities.
To be useful, a business plan must ultimately turn into a to-do list: who’s
going to do what, when, and how, and what result are they aiming for?
Too many business plans and budgets skip the details. They make high-falutin’
statements about all the millions of people with sedentary lifestyles,
obesity, poor eating habits. These plans list all the services that they
might offer, all the ways that they might promote and market their products.
Unfortunately, writing pages of glittering generalities about all the
possibilities that exist for your business is only helpful if it helps you
and your management team create the to-do list that’ll make your plan come
true.
Zero in on the details. Get specific. Instead of listing a dozen possible
ways you could market your sports-specific fitness and nutrition programs,
put together a detailed and specific plan for ONE way you’re absolutely
certain you will market your programs.
Tip #8
DO: write a plan that reflects what matters
most to you and your team.
DON’T: worry about what might sound impressive
to others.
If your vision for your business is to make a decent living for the owners
and the staff by showing up bright and early, unlocking the doors and
keeping the lights on and the area tidy while customers come and go
throughout the day, that’s perfectly OK. On the other hand, if what keeps
you going is an deeply altruistic vision of making your community healthier,
that’s OK too.
Many owners and managers get stuck on creating a vision or mission for their
business. Don’t worry about what you think it “should” be. And don’t spend
time trying to invent a mission that “sounds” good to other people.
The key is to honor what’s true for you and your team, no matter what it is.
Tip #9
DO: think about all the little details of
running a business.
DON’T:
focus exclusively on your great idea.
If you’re starting a new company – or launching a new product or service –
you’ve got to answer the million-dollar question: how exactly are you going
to make a business out of it? It’s only a business if you can actually sell
and deliver your service day-in and day-out. Otherwise, it’s a hobby.
No argument: the details of your product or service are crucial. You’ve got
to decide what the participant materials will look like, the colors they’ll
print them in, how long the sessions will last, what equipment you’ll use,
etc.
But you’ve got to spend at least as much time on the business aspects: how
exactly you’ll sell and market it, and what it’ll cost to provide it to
customers, and how you’ll run the business day-to-day.
A red flag: You and your team spend most of your time defining your service
or program. If you look at financials at all for your new business or
product, you mainly focus on customer revenues, not on the costs of
executing your sales, marketing and operational plans. You may not even have
specific sales, marketing or operational plans, although your “go-live” date
is rapidly approaching.
