So it is also that time of the year again. That time we dust off last year’s long term plan, update it with the current year forecast and then reconsider where the hell it is we are going as a company. As the CFO it is me and my team who lead and coordinate the process but it really is up to the business to own it.
That is always easier said than done.
Long term planning just feels finance for most organizations and that way pretty much the way it was at my company before I took over the role of CFO. We built our plans at the time four-around-a-table using a lot of guess-timates. Those days are now thankfully gone.
I initially laid out a three year plan to get the business to own the long term plan. Kind of a plan to build a plan. Year 1 brought in some other key players to help co-lead the production of the plan. Year 2 had the operational teams contribute to the strategy and thinking as well as the ultimate presentation. Year 3 had all divisions prepare their own long term plans that we rolled up into one. We then had to still play the cops and cut things down, as people often see bigger than our bank accounts. By the end of that year we had all teams aligned and the organization was surprisingly better coordinated.
It makes sense that when everyone knows where you’re going, they stop getting out of the car at the wrong moment or grabbing the wheel to go other directions. The journey becomes so much smoother.
This year we’re getting people to dream big too. We wanted to figure out just what we could do with our company if we unshackled the restrictions and dreamt of that destination we always longed for, but which, ultimately, we didn’t think we could attain. Clearly the outcome is not going to be our formal plan but I felt it is also good to let people be a bit more creative and the results have been surprising to say the least.
There is actually a lot that’s come out of the bigger plan that is helping us change course slightly and adapt our speed. And the teams seemed as motivated as ever given the glimpse of something greater. There has been more work but the outcome is pleasing for everyone. I don’t think we’ll do this on a regular basis but we needed it now and it is working.
While the company’s long term plans are run like a race car, with every piece now well maintained and knowing its role, my own personal long term plan is a little bit more informal.
Everybody should have their own long term plans!
Let me repeat that just so you fully get it: “You should have your own long term plan!”
I’m not only talking about the big plan or the ‘no restrictions’ plan that I’ve just talked about, I’m referring to the realistic plan. The plan that is based on where you are, where you logically and reasonably could go and the financial elements that go with that plan.
My plan goes out 18 months and I keep it that way, updating the outer months as time goes by. I run it month by month from a financial point of view. I use Excel as that is about the easiest tool, easily available and really adaptable to whatever way you want to build it.
The key is keeping it simple as complexity drives errors.
In my plan, I lay out my revenues and expenses on a month by month basis. I try to capture all the events that I know are happening. Birthdays, vacation, new asset purchases etc, etc. I also model sensitivities like an increase in my company’s stock price beyond analyst estimates (or below) that would mean my long term incentives come out higher (or lower) than expected. What would I then do with that extra money and how would I invest it. I also add contingencies of around 5%-10% as things happen that we can’t forsee.
This work helps me keep a good handle on my own finances and also helps me project my asset base out into the future. Company long term plans are pretty much the same exercise, just at another level of complexity.
Do I have a dream plan? An unrestricted plan?
Actually I don’t have one on paper or in Excel but I do have a clear idea of what the bigger plan is. It does evolve on a regular basis as my life evolves, but it is always there. Knowing an ultimate destination that is slightly different to my realistic destination helps me slightly adapt my course when things happen or when opportunities present themselves that serve the purpose of the bigger plan. I hope this isn’t too complicated to follow, but I’ve found it useful to be formal on the realistic plan and informal on the bigger plan.
What will be interesting to see is if my thinking evolves now that the company has prepared a bigger plan?
One personal evolution is that this blog was born out of the work on the bigger plan at the company. So sometimes dreaming a little bigger leads to you seeing things a little bigger.