The importance of planning and measuring

We are hoping that post-election there will be a degree of stability in business, but just what is stable business? Since retail price maintenance was outlawed under competition law the public and businesses have become immune to paying the price for anything and have become adept at squeezing the pips of everyone and everything they come into contact with.
Businesses in the motor industry should have reacted to this ultra-competitive environment but unfortunately few really have.
I know that some may consider me to be a control freak, but those who really know me, understand that it’s so that I can react to the market from a position of security. The tools for achieving this are a detailed business and profit plan, Daily Operating Controls (DOCs), Management accounts (MAs) and a really good ‘What-If’ modelling spreadsheet.
Now, there are those who sell various software packages that will do some or all of these functions, and I don’t knock their products, some are brilliant. However, over-reliance on composite information; created as a calculation from input data can cause the user to ‘assume’ the validity of the output without question – if the system says that, then it must be right. I accept nothing I can’t replicate with a calculator, I therefore usually write my own systems using Microsoft Excel, Google forms or Open-Office.

Interactive worksheet

My plan is how I want my business to perform. Using historic information and allowing for inflation and known factors, it is quite simple to produce a forecast – starting from forecast sales, cost of sales and gross profit. Now come the direct expenses; those that are due to the volume of sales – this includes sales and other staff who are responsible for sales volume (not management and financial staff). In the parts distribution arena cost of delivery, van costs (but not leases) fuel and maintenance must also be included. This is not a column of figures but a month-by-month interactive worksheet that reflects the number of working days, bank holidays, and must make allowances for staff holidays, sickness and training as well. These costs taken from gross profit will leave direct profit or the summary of trade.
If you have more than one department, you would have similar worksheets for each department and these would be summarised onto a company summary. Now you have to consider the indirect expenses – costs of property, insurance, lease management and finances (as these are a shared overhead). Nowadays pensions and other staff costs are taken at this level as once again these may span several departments.
This business plan must bear scrutiny, be based on something like the truth because the next trick is to achieve the volumes and profits forecast. DOCs are used to measure performance in sales and other items that can be controlled on a daily basis. These DOC figures are for information purposes and guidance, literally, are we doing the business? MAs are more factual, are produced monthly and measure all aspects of business during the course of the month in question – these can be compared with the month columns on the profit plan and help you maintain perspective on achieving that all important annual plan.
Here we venture into the black art of what-if. For me this is where I go to consider if something can be done. As I move around the industry, I hear decisions made on the fly – discounts given, trading terms varied and other seat-of-the-pants actions that knock-on into the profit plan and vary the end result.

Daily checks

With these tools in place I can trade with confidence. My time is used working around the business, helping the staff and ensuring the day-to-day tasks are kept up to date, returns, credits and VAT, so there are no nasty hidden surprises that will creep out of the woodwork and catch my businesses out. At 10:00 every day I’m in the office with a cup of coffee checking the DOCs which allows the taking of corrective action before the show comes off the rails and then monthly MA reviews are a management meeting that takes place two days after the MAs are produced – it’s not rocket-science, just good business.
In our business we were even looking at what could happen if there was a change of government, the Scottish referendum had ended differently and the effects of changes in the budget. We don’t have insider information but we best-guess situations (although the last election wasn’t foreseen).
Whether you are a PLC, a private company or just using bank-money, the purpose of opening the doors is to make money and generate a return on investment – this isn’t a perhaps or maybe, it’s an obligation, yes, even with regard to your own investment. The more effective you can be at ensuring this happens is the mark of a true manager – otherwise just what are you managing?

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- who has written 1163 posts on CAT Magazine.


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