The best way to keep any business on track is an annual business plan. This allows you to set goals for the next twelve months and determine the general direction of your company. The annual business plan includes the steps required to achieve these goals.

Each of your annual targets will probably have consequences for the business. For example, an increase in sales might necessitate hiring more employees. Business growth might put a strain on working capital. It is best to consider all the potential effects of each goal you set when devising an annual plan.

A step-by-step approach to business planning is the best. Here are the critical steps to follow when devising an annual business plan and budget.

Step 1. Assess Last year’s Performance

It would be best to look back on last year before you begin planning the next twelve months. Analyze the accounts to find where you hit your targets and where you failed to achieve your goals. Consider, too, how you might have increased profit. Were gross margins as high as you anticipated? In what categories of overhead did you overspend? An analysis of the past year marketing campaign results will also help you rationalize your marketing spend for next year.

Step 2. Set Your High-Level Goals

The high-level goals you first set will change as you get deeper into the planning process. Setting optimistic objectives will provide a starting point in the planning process. Then, you can begin to break down what is needed to achieve those goals. You can then modify your original targets accordingly.

Step 3. Quantify Each Step

Each of your planning steps will have a monetary impact. The annual business plan is as much a budgeting exercise as a strategic planning exercise. For that reason, you will need to quantify the impact of each decision and update financial projections accordingly.

Step 4. Consider the Need for New Products or Services

One way to expand a business is to introduce new products or services. Existing products might need upgrading or enhancing. Consider if new or improved products will benefit your business. Determine the cost of bringing those products or services to market.

Step 5. Outline a Marketing Plan

A review of last year’s marketing campaigns will help determine where to focus efforts in the next twelve months. If expansion is your goal, you will need to decide how much to increase the marketing budget and where that money will be spent. You might also want to consider new marketing opportunities that you have yet to try.

Step 6. Review Human Resources

The next thing to consider in your annual business plan is your human resources. Will you need to recruit new employees to cope with the planned expansion? Are there any existing employees who are ready to take on new challenges? Now would be the right time to consider pay raises for employees, too, and add those increases to your annual budget.

Step 7. Assess Future Infrastructure Needs

Any expansion plans might necessitate the need for more extensive business premises. It would be a good idea to review your space requirements as a part of the annual planning exercise. Acquiring and moving to a new business premises can be time-consuming and costly. So, the sooner you start planning for such a move, the better. Thorough planning will also be required to minimize business disruption during a relocation.

Step 8. Schedule Equipment and Machinery Acquisition

Old equipment may need replacing, and new machinery may be required to cope with increased production. A fixed asset acquisition schedule will be a necessary element of your annual business plan. Purchasing new equipment can create a one-off drain on cash flow, so the timing of acquisitions is critical. Alternatively, you might want to consider financing options, such as rental or leasing.

Step 9. Review the Use of Information Technology (IT)

There are always new developments in technology every year. It is advisable to keep up to date with developments to ensure you are gaining the maximum benefits from your IT. There may also be areas of the business where investment in new technology could save time and money. An annual review of IT resources is a good idea for any business.

Step 10. Consider Financing Requirements

Once the above points have been considered, you will need to assess the financial implications of your plans. An annual budget and cash flow forecast will be required. From those figures, you will be able to assess the need for any additional financing. You can explore the various financing options once you have determined your need.

Conclusion

The best place to start an annual business plan is with high-level goals. Then consider the implications of those goals in other areas of the business. The crucial point to bear in mind is that one decision invariably leads to consequences elsewhere in the company. A comprehensive step-by-step review of what will be needed to achieve the business goals for the next year is essential.