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Tip: Create Three Sets of Business Plans Each Year

Tip: Create Three Sets of Business Plans Each Year

August 15, 2012
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The assumptions behind any forecast and budget are fluid, Brent Grover writes in this excerpt from The Little Black Book of Strategic Planning for Distributors. But that doesn’t make them any less critical. The assumptions you hold about what might happen in the coming year have a cascading effect on the resulting sales and margin forecasts and, naturally, on your expense budget. “It would be hasty to slash expenses prematurely based on a draconian forecast than turns out to be wrong,” Grover says.

Likewise, too much growth can also cause problems for distributors. After all, rapid growth can cause a cash crunch when it’s needed most.

But how can you account for the unknowns? How can you plan when the economy seems like it changes every three months?

Grover suggests devising three sets of business plans: a base case, worst case and best case. A base case plan is used with meetings with lenders and for tracking business performance. A worst-case plan is based on what management thinks is the most negative sales growth and gross margin that can reasonably be anticipated – if assumptions behind the base plan turn out badly. And the best case is the mirror image of the worst case – the best sales and gross margin result that can be rationally anticipated.

Having three sets of plans will provide a guide for whatever happens next.

To learn more about this approach, order Grover’s book, The Little Black Book of Strategic Planning for Distributors.

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