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- An annual plan is a complete document that includes goals, KPIs, and budgets to assist a startup in achieving its goals. Creating an annual plan is similar to making a New Year's resolution. And that is why it is crucial to set priorities and manage your startup's future.
- The best annual plans are built on your startup's overall strategic vision and fundamental values while also offering particular goals, measurements, and budgets for founders, managers, and staff to follow.
- The annual operating plan should be flexible enough to react to an unexpected and often tumultuous market. Furthermore, the annual plan provides you with an overview of all the tasks required to accomplish the plan's objectives.
- The annual plan helps founders guide their growth, organize their priorities, assign responsibilities, keep track of their progress, and budget strategically.
- The many different kinds of market sectors, services, sales, and marketing activities that are top your startup's priorities are outlined in the annual plan. Milestones like responsibilities, key activities, deadlines, and budgets constitute the foundation of the annual plan. One of the annual plan’s most notable features is the financial plan, which is dependent on cash flow.
What is an Annual Plan?
Startups face drastic consequences and miss out on the potential to be operated more productively if they fail to meet their yearly goals. An annual plan is a complete document that includes goals, KPIs, and budgets to assist a startup in achieving its goals. Creating an annual plan is similar to making a New Year's resolution. And that is why it is crucial to set priorities and manage your startup's future.
The following questions get addressed by the annual plan:
- How did the startup perform last year?
- What do we hope to accomplish this year?
- How will we achieve our objectives?
- How to monitor and measure your progress against the given objectives in real-time?
The annual plan is also referred to as the annual operating plan (AOP). AOPs are usually created once in a fiscal year. They’re organized in a top-down manner. As the founder of a startup, you will set goals for your managers, who will set goals for their direct subordinates. An interesting use case occurs when the account managers go over their department's major accounts and establish AOPs for each of them. You can also go straight to major client accounts and work on them in greater depth.
Did you know that approximately 50% of employees in the U.S. do not know what is expected of them at work? This goes to show how severe the disconnect between people and their jobs has become and how important it is to lay down clear expectations for team members every year.
Many startups miss out on the potential to manage themselves more effectively through a properly developed annual plan because of factors such as:
- Their use of invalid or otherwise faulty reasoning
- Their tendency to stick to the status quo or to want to remain unchanged in their processes
- Spending undue time on problems that need to be dealt with quickly
And other related factors.
As a founder of a startup, will you be able to afford not to plan? Do you rely on reacting to circumstances as they crop up? Or do you want to prioritize your goals and proactively manage your growth?
Why is preparing an annual plan crucial?
While the strategies to prepare an effective annual plan are fairly prevalent in large corporations, they are relatively uncommon in small and medium-sized businesses.
According to Adobe Experience Cloud, the best annual plans are built on the startup's overall strategic vision and fundamental values while also offering particular goals, measurements, and budgets for founders, managers, and staff to follow. If it is to do its job well, the annual operating plan should be flexible enough to react to an unexpected and often tumultuous market
The annual plan also provides you with visibility into all of the tasks required to accomplish the plan's objectives. Plan figures are entered quarterly for the whole fiscal year. For each level, a distinct “owner” is appointed. Each owner is responsible for ensuring that their plan is in sync with the plans for the levels above and below their own. You can iterate up and down through the levels, allocating and changing numbers, reconciling the numbers for that level with the aggregate from all lower levels.
Now that we have discussed briefly what an annual plan is and why it is crucial, let's dive into its key benefits.
Benefits of an Annual Plan
Guide your growth
Several factors, including broad economic trends, geography, specialized market needs, human resource requirements, other potential reasons influence whether or not your startup expands successfully. Startups that successfully expand operations and prevent unexpected outcomes use an annual plan for directing and influencing their growth - rather than reflexively reacting to business events as they manifest themselves - so that they can move proactively toward set goals.
Organize your priorities
Focus is what good strategy is all about. An annual plan helps you allocate resources to the areas where they will have a significant impact. It enables you to focus on your strengths while correcting your weaknesses.
Lastly, it will let you develop your startup by focusing on its most critical aspects according to your long-term goals.
The annual plan provides a framework for establishing well-defined organizational responsibilities.
Keep track of your progress
With an annual plan, you can track your progress toward goals, measure results, and manage your startup effectively. If you don’t have a plan, you’re walking in the dark.
How do you tell if you're heading in the right direction? What do you use as a yardstick? These are among the questions that the annual plan addresses.
Profits are not always cash, and cash isn't always easy to understand. You don't spend profits; you spend money. Many startups, however, do not plan carefully for cash, even though they should. This kind of adroit planning and budgeting may not appear to be among the most high-priority things to do, but it really should be. It's also at the heart of an annual plan. You have to think ahead to generate income and an annual plan - with a tactical budget at its heart - is quite a practical way to do so.
Vital Aspects of an Annual Plan
- Concentrate on the most significant issues: Prioritization gets determined by planning. Which of the many different kinds of market sectors, services, sales, and marketing activities are your top priorities? When you are able to answer this, you’ll be able to outline the most significant issues and priorities in the annual plan.
- Understand responsibilities, key activities, deadlines, and budgets in detail: These are referred to as “milestones." Responsibilities, key activities, deadlines, and budgets constitute the foundation of business planning and are essential to its success.
- Plan your finances: The financial plan, which, of course, is dependent on cash flow, is one of the most notable features and benefits of an annual plan.
Limitations of Annual Plan
Despite the numerous benefits of the annual plan, there may be some challenges and limitations in the process of preparing it. Keep in mind that an annual plan isn't a panacea for all of your startup's difficulties. It can only reduce uncertainty to a certain degree.
The following are some drawbacks of the annual plan:
Startups rely on data and figures to make decisions. If the data on which any decisions are based is unreliable, then the decisions themselves will be unreliable as well. In other words, if reliable information and figures are not provided (or are not adequate), then planning will lose its value. This can be especially problematic for early-stage startups as there might not be much data available.
The time issue can sometimes diminish the practicality of an annual plan. Preparing the AOP takes time, and when thorough planning related to the AOP has not yet been completed, activities related to various core operations may get postponed. There is a risk of missing out on important opportunities as a result of this delay. When time is of the essence, preliminary planning is pointless. This is because when immediate action is required, it is simply not possible to wait for the planning process to be completed first - something that early-stage startups know all too well.
The process of preparing an annual plan is often quite costly. Massive sums of money get spent on obtaining information and testing potential courses of action. Due to such tremendous costs, long-term annual planning might be something of a luxury for most businesses. Therefore, it’s probably a good idea to estimate the expenses of developing an annual plan in advance because the ultimate value received after preparing an annual plan should never be less than the cost of preparing it.
External considerations might reduce utility
In addition to internal influences, some external factors can hurt the annual plan, too. Economic, social, political, technological, and legal considerations might all play a role. In some cases, the overall national and international circumstances could also serve as a constraint in the planning process.
Resistance to Change
Most people, generally, do not like any change. Their indifference to fresh ideas then becomes a planning constraint. The main psychological barrier is that managers and leaders might be more concerned with the here and now than with the future. Not only is the present more secure than the future, but it is also generally more desirable. In the business/corporate sector, resistance to change is a typical occurrence and, contrary to popular perception, this often extends to startups as well. Preparing an annual plan frequently entails changes that the startup would prefer to avoid in the future because of their affinity with the present.
How to Prepare an Annual Operating Plan?
As we know, the AOP can get completed at any time during the year, but it is generally most successful when completed before the new fiscal year. This allows startups to take advantage of potential tax planning and to begin the new year prepared for the post-holiday slowdown that many businesses experience.
You must consider several steps involved in preparing an effective annual operating plan if you wish to maximize the profits and success rate.
Assemble a Diverse Team
The success of a startup's strategy is determined by how well it gets carried out, and who better to know what employees are capable of than the employees themselves?
Hire an independent consultant and put them in a “working group” along with the relevant employees. Many financial consultants have years of expertise working with AOPs. They understand how to analyze data in a precise and intelligible manner.
Examine Prior Years' Data
Examine prior years' financial accounts, budgets, reports, and other records to gain a solid understanding of how the startup actually operates, and then use that information while you create an AOP. For example, knowing which months of the year are busier than others can help you create a budget that meets the particular needs and expenses associated with those months.
Establish Realistic/Achievable Goals
The startup's objectives are big-picture goals that should have measurable effects, such as boosting revenue or minimizing waste by a specific percentage. To make it easier to focus on the most crucial areas of the business, a startup should set no more than five primary objectives.
When defining goals, inquire about the startup's current state:
- Which departments are doing well and which are underperforming?
- What is causing the bottom line to rise or fall?
- What processes should be enhanced or changed?
- Where are inefficiencies?
- Is it necessary to assess the startup's systems?
Look for KPIs (Key Performance Indicators)
Once the goals have been established, decide what measurable actions will lead to the startup's goals being met. What steps will the team take to achieve these objectives? Limit the number of KPIs to make the data easier to understand.
The achievement of KPIs should be a clear numeric target for each individual and department. This way, employees and managers will be able to focus on what is most vital thanks to these specific KPIs.
Establish a monthly budget
It's comparatively easier to stick to the last year's budget, especially when it's broken down month by month. However, it's recommended that you prepare the annual plan according to the current year's budget. Choose a top-down or bottom-up budget, and treat each month independently to account for revenue fluctuations.
Prepare for the worst
When constructing an AOP, keep in mind any and all potential setbacks. What could prevent the startup from accomplishing its objectives? What could go wrong in every facet of the startup? Incorporate potential solutions into your annual operating plan. This way, if a setback does occur, you will be ready for it.
Go over it again - regularly
Return to the plan at various points during the year to track progress toward your startup's goals as set in the AOP. Examine KPIs to see how near the startup is to meeting its objectives. Determine what variables, if any, are causing a lag or poor performance in a particular KPI.
For example, let's consider a startup whose objective is to increase its sales revenue by 30% and a KPI goal of enhancing the number of sales calls by +5 calls per day. This startup needs to know how many calls are made. If the actual number of calls per day is less than the target, then the founders can look into why the salespeople aren't hitting the target.
Annual Operating Plan Templates
Annual operating plan templates are pre-filled documents that you can use to produce a meaningful and effective operational plan. Such a template simplifies and streamlines the process of developing an annual operations plan. You can use the template as a starting point for developing your own annual plan or use the template as is.
There are various types of operational plan templates available on the internet, and many of them are free to download. They are developed in a variety of file formats that we're all familiar with. You can customize any operational plan template to meet your specific requirements or to make the content more relevant to your needs. When you use a great template, you can rest assured that your annual planning will be thorough and detailed.
So, these were some of the benefits of using an annual operations plan template.
Here are some of the best such templates:
- Annual Operational Plan Template #1
- Annual Operational Plan Template #2
- Annual Operational Plan Template #3
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