Realistic Business Planning

Realistic Business Planning- Complete Controller.

Anyone founding a company or developing a new product needs a plan, but unrealistic, high-spirited assumptions are often made.

It is a fact that many companies fail, and it is common and expected in the business industry. Nobody can see into the future and know what will and will not be successful, yet many strategists and managers think they can calculate and plan the future only to wonder why things go wrong. A coherent business plan is essential to avoid wasting money when buying a company, entering a new market, or developing a new product.Cubicle to Cloud virtual business

Question Planning Assumptions

A key reason for failure is that the planners do not question their assumptions; they pretend that products sell as if there is no competition. This view comes from Rita Gunther McGrath and Ian C. MacMillan, professors from Columbia Business School in New York and Wharton School in Philadelphia.

With this drastic assessment, they want to point out how important it is to clarify the assumptions and implicit hypotheses of the planning and question them. They have to be tested and, if necessary, adjusted if the planning wants something to do with reality. McGrath and MacMillan advocate paying attention to the following when planning strategic decisions.

Start Profitability Planning

Most business plans are based on forecast sales and turnover figures: that’s how much will be sold. Whether this is realistic and whether the business is profitable remains open. Instead, planning should start with profitability: What profit should the new business generate overall?

The other financial parameters are derived from this number, notably the required turnover and the investments and running costs incurred. This makes it easy to see whether the planning is realistic and what orders of magnitude sales have to reach to achieve the target return. It can be assessed whether the sales figures are possible.LastPass – Family or Org Password Vault

Calculate Permissible Costs

In most cases, the costs for a project can be estimated quite accurately. All relevant expenses should be included in the total cost accounting. Ideally, the planned process to manufacture products or provide services can be described in detail. Then, the costs can be determined using process cost accounting. They make it clear whether the desired return can be achieved.

Together with the sales figures, the market price per product unit can also be determined and compared with the competition. If doubts arise and the required costs and the desired return result in a necessary turnover that can only be achieved with many question marks, strategists should refrain from doing so.

Make Assumptions Visible

All assumptions should be made visible in every plan. Often, strategists are not aware of the planners, or they are displaced. It is why you should speak to other experienced employees in the company:

  • What do they think of the plan?
  • What assumptions do they discover?
  • Where are the differences of opinion, and what are their reasons?
  • Which assumptions are unrealistic?

For example, if the plan is to sell 100,000 pieces of a particular product, you should check how many acquisition talks it takes, how many employees are required, and how much it will cost. This makes it clear whether the bill can work. Making as many invoices as possible is advisable, thus creating transparency.

Complete Controller. America’s Bookkeeping ExpertsQuestion Coherence

With the return targets, the permissible costs, transparent assumptions, coherence, and plausibility can be questioned, and the business assessed. Only when everything fits together and opens is there a chance it will become a successful company. Implementation can now begin.

Define Milestones and Plan Adjustments

In project management, it’s crucial to regularly review and adjust plans to ensure they remain realistic and aligned with project goals. Milestones are established at key intervals or when significant interim results emerge, prompting the evaluation of several factors:

  • Changes in framework conditions
  • Potential misjudgments of individual factors
  • Shifts in assumptions
  • The need for corrections to calculations

Having clear termination criteria enables informed decisions on whether to continue the project. Additionally, a checklist of dangerous assumptions in business planning helps identify potential pitfalls, such as overestimating customer interest, underestimating competition, or expecting unwavering support from within the organization. Regularly scrutinizing plans and carefully considering assumptions are essential for successful project execution and risk mitigation.

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