The long-range plan should provide guidance for all areas of activity in the company:
- Approaches to Market: These are specific statements that summarize how the company plans to accomplish its mission. In other words, what is your company’s unique way of reaching the market?
- Marketing Message and Direction: Is the proper market being reached with the proper message in an appropriate frequency? What is the new message? What direction are you heading with your marketing?
- Measurable Sales Goals: These should be based on the assessment of existing markets. How much are we selling now, how much do we want to sell in the future? Examples of what can be measured: increased unit volume, increased profits or increased sales leads.
- Measurable Operational Goals: Set specific goals such as zero invoice errors, zero delivery errors or more production per shift.
- Measurable Feedback Improvements: Identify ways to improve customer satisfaction and then measure progress. Tracking increases in customer-service ratings obtained via surveys is one possibility.
Implement the Plan
- Translate your goals into specific action plans for each department.
- Prioritize required resources.
- Ensure consistency between departments: Each department plan must be brought together with action plans for other departments to ensure they mesh. For instance, the marketing department’s goal of expanding into new sales territories may require additional equipment (laptops, wireless phones) from administration or additional staffing and training via human resources.
- Review annually. The long-range plan should be reviewed at least once a year to be sure it reflects changes in the company’s position and its markets.
The long-range plan is normally updated each year, often during the annual planning process.
Identify Emerging Opportunities
During long-range planning, a business owner tries to uncover trends in the marketplace that could be developed into revenue opportunities for his company in the upcoming years. Opportunities emerge from changes in consumer tastes or needs, new technologies, untapped geographic markets and customer groups, and even changes in government regulation. Long-range planning helps the business owner look beyond the current challenges that the business faces, and scan the business environment for what’s coming next.
Stay Ahead of Competitors
One goal of planning is to turn current weaknesses into long-range strengths that help the company build a sustainable competitive advantage. Some weaknesses can be mitigated within the time frame of a one-year business plan. Others require more time. For example, a weakness in research and development capabilities — bringing innovations to market on a regular basis — may require a multi-year effort to attract new engineering and research personnel, and an expansion of research facilities and technology within the organization.
See Upcoming Challenges
Taking a long-range view allows a business owner to foresee changes to his industry or market that could negatively affect his company. He then makes contingency plans to deal with these potentially adverse conditions. If he became aware of forecasts of raw material shortages occurring three years from now, for instance, he could change his product mix to not rely so much on commodities that will become scarce and too costly.
Organize Long-Range Projects
Certain projects, such as building a new factory, require a multi-year effort to plan and achieve. The long-range plan shows the steps that must be taken each year to make the long-range project a reality. The long-range plan shows what resources — human, capital and productive capacity — need to be allocated to the project each year. The long-range plan includes milestones that must be achieved each year to complete the project on schedule.
Ensure Adequate Capitalization
In the long-range plan, the business owner prepares a long-range capital budget that shows the cost of the projects he intends to accomplish over the next three to five years. This budget, when to compared to the long-range cash flow forecast, shows him whether the company will generate enough internal cash to fund all of the projects without putting the company in a cash shortage position. The owner may find that outside capital will be required from investors or lenders. Because securing capital can be a lengthy process, anticipating the cash needs well in advance makes it more likely that the funds will be available when needed to complete the projects.
Create a Forward-Looking Business Culture
The process of doing a long-range plan year after year results in the company’s owner and management team developing heightened awareness of the business environment they operate in, and better ability to predict what will happen over the long term. The process also results in the creation of a system to gather information about the environment that will be useful for the management team to use in preparing the plan. Ideally, planning will become an ongoing process that is integrated into the company’s culture.
One thought on “Long Range Planning of Business”