Academic journal article The Journal of Business Forecasting Methods & Systems

Business Planning Practices in Small Size Companies: Survey Results

Academic journal article The Journal of Business Forecasting Methods & Systems

Business Planning Practices in Small Size Companies: Survey Results

Article excerpt

Small to medium size companies often prepare strategic plans when a major event is anticipated such as business acquisition and bank financing ... manufacturing companies tend to plan for a longer period than retail and service industries ... consultant's role is often to challenge the company's mission, goals, strengths, weaknesses, market share, growth rate, and financial projections.

The objective of the article is to present the planning practices among small businesses which are in search of success as defined by them. Planning practices refer to business plans prepared for I to 5 years, which are known as strategic plans or long range plans. Small businesses are defined here as those that have annual revenues of less than $20 million, and have local or regional business activities.

A typical small business' planning process is presented in the form of a skit to demonstrate lack of communication among key executives responsible for planning, high degree of informality, and limited purpose of the plan.

Mr. Boss: Mr. Beancounter (Accountant), do you think that you can put together a business plan for me for next year's operation? I'm going to talk to my banker next week, and I'm sure he is going to ask for one.

Mr. Beancounter: Sure Boss! How should I make it up? Should I use the same sales volume and profit as last year?

Mr. Boss: Well, I really hadn't thought about it. Oh, you know what to do, just work something up.

Mr. Beancounter: (Laughing inside) Huh! Guess I'll just increase last year's sales by 5%. That should do it.

(72 hours later)

Mr. Beancounter: (Looking at big work sheet) Man! What ajob! I'm glad that's all done!

Mr. Optimist: Hi Mr. Beancounter, how are you doing?

(Sales Mgr.)

Mr. Beancounter: Okay, I guess. I've just finished making up next year's business plan for the boss.

Mr. Optimist: Well, it should look good with the big sales increases we are planning for next year.

Mr. Beancounter: What do you mean "big" sales increases? What are you talking about?

Mr. Optimist: Oh, didn't the boss tell you about my plans for increasing sales next year? I figure we will add the new beachwear package to our existing line which should give us additional sales of 1,400,000 pairs of sandals. We are also going to increase our sportswear by an additional 3,000,000 items. And with the extra funds for promotions next year, I figure that our "Back to School" line will increase to at least 2,000,000 pair of shoes and 2,000,000 sweaters and jeans. I told the Boss about this in the corridor a week or two ago, and he said if business were going to grow that much, he would open another 30 stores. He had been waiting for the right opportunity to expand.

Mr. Beancounter: You must be kidding! You're going to add over 8,400,000 items to the sales volume, and you're going to handle it with only 30 more stores? That's 280,000 items per store. The Boss is pulling your leg. It looks like he has taken your figures and divided by 2. That's about where your forecasts come out most of the time anyway. Even at that, he figures a good part of the extra volume is going in the existing stores. By the way, what are you planning as an average volume increase per store?

Mr. Optimist: Gosh, I don't know. You keep all that stuff. I never get to see those figures.

Mr. Beancounter: Well, I guess if the Boss told you that we were opening only 30 additional stores, then I should better figure on that and reduce your figures to fit. Anyway, I worked the plan based on last year with a 5 percent increase. The profit didn't come out too good, and I know the Boss is going to be unhappy. Oh well, back to the drawing board for revision. (48 hours later)

Mr. Beancounter: Well, I finally got it! Boy! I had to make a lot of changes, but the Boss is going to be real happy. There is going to be a nice big profit! …

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