TZL 932

FINANCE A SUPPLEMENT OF THE ZWEIG LETTER

OCTOBER 24, 2011, ISSUE 932

S T R AT E G Y

Updating the business plan

Flexible or solid? Benchmarking or forecasting?

world,” she says . “In the backs of our minds, we know the long-range picture, but we have to deal with the pressing reality of this economy, where nothing is taken for granted.” D’Angelo says projections are re- viewed each month and staff is adjust- ed as needed by adding, terminating, or moving between departments and offices. The new normal. D’Angelo feels the A/E/P and environmental consult- ing industry is experiencing shorter schedules and increasing expectations. “It used to be, we always had a roll- ing forecast for six months, and it was off the charts. Now if we have three months, we feel good. And yet we keep reminding ourselves, we’ve been doing this for a year,” D’Angelo says. “Now, this is the new normal. That’s why we are so adamant about meting month- ly and looking at every dollar, each department – who is overstaffed or understaffed. Those are things we con- stantly monitor.” Business plans at Chambers Group, Inc. (Irvine, CA), a 150-person envi- ronmental consulting firm, are created each year and the goals of the plan stay in place for that fiscal year, says Craig Neslage, executive vice president and operations manager. “But the business plan begins with the knowledge and insights company man- agers and sales staff has at the time. As the year progresses, new knowledge and insights may produce changes to the strategy of the plan. It’s a dynamic cycle. So we update our business plans quarterly based on any new insights or results,” Neslage says. The act of up- dating plans assists leadership in tak- ing stock of what has happened and what may need to be done differently to reach goals by year’s end, he says. Needed, no doubt. “For AECs, a business plan should be an integral part of the strategic plan and the mar- keting plan,” says Ernest Burden, prin- cipal of AEC Advisors, Inc. (www.aecad-

visors.com), and ZweigWhite author. He says the plan usually incorporates two distinct ideas; the first part out- lines the objectives, and the second part expresses those objectives in fi- nancial terms. “As such, it can be used as a forecasting tool because it’s coordi- nated with the strategic and marketing plan, and later as a benchmarking tool to judge performance. Like the strate- gic and marketing plan, it must be a written document to be effective,” he says. An effective business plan should be aligned with overall strategies and should incorporate marketing objec- tives, Burden says. “Since the business plan (in my estimation) should be co- ordinated with the strategic plan and marketing plan, they should all be up- dated every year. People might know this, but they don’t always do it,” he says. Forecasting or benchmark- ing? Hobson Hogan, a ZweigWhite principal who specializes in mergers and acquisitions, finance, and strate- gic planning, believes a business plan is the roadmap for allocating a firm’s fi- nite resources. These resources can be time, money, market focus, etc. Every firm, including Apple, GE, Exx- onMobil, has limited financial and tal- ent resources, and the business plan al- locates the firm’s resources to achieve its strategic goals, he says. The first pri- ority would be to set the firm’s strate- gic goals and vision and form a busi- ness plan that will meet those goals, Hogan says. “For some firms, their number one goal may be grow to be the largest firm in North America; however, it really needs to generate cash flow to sustain an ownership transition and therefore significant capital expenditures for ex- pansion would be incongruent with their reality,” he says. “Forecasting is a tool that helps firms make their re- source allocation decisions and helps drive the yearly budgetary process.”

By Julie Kyle Editor U pdating a business plan is never done, if you’re doing it right. This may sound like chaos, but a constantly updated business plan is actually what creates order out of chaos, says Tim Berry, founder of Palo Alto Software, Stanford MBA and author of books and software on business planning. “I believe in business planning but I don’t think a business plan is a docu- ment,” he says. The business plan is analyzed and updated every month at MSA Pro- fessional Services (Barbaroo, WI), a 310-person engineering and architec- ture firm, says Jim Hendricks, CFO. MSA uses short-term and long-term strategies to benchmark and forecast. “We prepare an ‘annual business plan’ and keep that plan intact for compari- son purposes – to track our progress,” Hendricks says. The firm’s leadership also prepares updated or current busi- ness plans every month for a two- month, forward-looking period, in an- ticipation of workloads, vacations, impacts of holidays, added personnel, layoffs, cash-flow anomalies, and un- usual or seasonal expenses. “This would be very similar to our cash flow plan, which has a month-to- month component to it,” Hendricks says. Finance and accounting departments have to remain extremely adaptable and fluid with their business planning in today’s business environment, says says Judy D’Angelo, controller at Ma- tern Professional Engineering, Inc. (Fort Myers, FL), a 41-person full-ser- vice engineering firm. “Those people who are rigid, a year down the road they’re going to run out of money. “There’s the idealist, with the long- range plan, and then there’s the real

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