Berntson Porter CPA ARTICLES

Planning for Success...

Companies in the contracting industry face both challenges and opportunities in this soft economy. Strategic business planning can be an effective tool to overcome the challenges and capitalize on the opportunities. Why should you invest your time and money on formal strategic business planning? What is a strategic business plan anyway? How do you create a good planning process? When should you plan? Who are good planning partners? This article will answer some of your questions.

Why plan? Ongoing strategic planning can help you to consistently earn more money, improve productivity and reduce problems. Planning helps you:

" Create a sustainable competitive advantage. Planning helps you develop a better understanding of your market, customers, competition, internal resources and government influences like interest rates, capital budgets and land use regulations. Construction-related companies operate in a dynamic, cyclical, and high-risk environment facing a constantly changing mix of opportunities and threats. Planning helps you keep on top of it all.

" Improve your chances for success by identifying, clarifying and implementing your corporate vision of success. Most publicly traded and venture-financed start-up companies use plans to determine priorities, adapt to changing circumstances and monitor performance against standards.

" Identify and resolve current problems. Focus on what is really important. Many business owners work so hard in the company dealing with the day-to-day problems that they fail to work on the total business. As an old saying goes, "It's hard to remember our job was to drain the swamp when we're up to our necks in alligators." Planning keeps you focused on draining the swamp to while ridding yourself of the alligators.

" Build a stronger, more closely knit team. Good planning brings together the intellectual resources in your company while creating positive outcomes.

" Build a stronger company. A continuous business planning process helps to strengthen your balance sheet, improve profits and cash flow, protect assets, develop internal and operational control systems, and quickly adapt to changing circumstances. The cyclical nature of the construction industry makes it imperative that you be aware and financially strong enough to adapt to changing conditions quickly.

" Develop an exit strategy. Do you want to sell to a bigger company for the "offer you can't refuse?" Create an ESOP to enable employees to share in wealth creation, generate cash and diversify your personal investments? Sell to key employees, transfer to family members, close and liquidate the company, or do something else? A comprehensive business plan considers your exit goals.

These are all great reasons why you should plan. What then, is a good plan?

Simply put, a good strategic business plan is analogous to a road map combined with a plan of action to get you from where you are today to where you want to be in the future. It is "alive" in the sense that it is always in use and evolves along with the business. It is not quickly filed and forgotten as some types of plans are after being used to get a loan. Think of a sailing ship destined for a specific homeport. Although weather may force short-term course changes, and there may be stops in other ports, the final port of call remains fixed.

A business plan is like planning for a construction project. You envision the end result and create detailed drawings to transform a plot of dirt into a beautiful and productive building. You figure out the human and capital resources necessary to complete the project profitably. You decide on phases, priorities and timing to most efficiently construct the project. Resources are marshaled. Construction begins and continues until the project is completed. During the project, deadlines and benchmarks are established and achieved. Sometimes changes to the plan must be made. Upon completion, a punch list is used to tie up loose ends and assess quality. Then you move on to the next project based on your desires, qualifications and opportunities (vision).

If the mental picture of a plan is similar to a construction project, how do you build an effective plan process?

Think of planning as a continuous problem resolution tool used to build your ideal future. Start by envisioning where you want to be by some point in the future, say three to five years. Your vision represents a constant that does not change with daily circumstances. For example, it might be something like, "Our company is the preferred contractor (in our specialty) for projects between $5 and $20 million in the state of Washington. Our mission is total customer satisfaction resulting in zero recalls to the completed project."

Detail out in writing your vision for types of projects desired, marketing, operations, employees, customer relationships, finances and so on. Details help make the plan more real, comprehensive and interrelated. When you detail your vision you, your associates and employees begin to consciously and subconsciously work to make it a reality.

Next, describe your current situation analysis. Include strengths, weaknesses, opportunities and threats. Take into consideration economic and industry trends, business conditions where you operate, marketing opportunities, products/services and processes performed by the company, human resource issues, and finances.

In most cases, current conditions do not reflect the reality you want to create. The difference between where you are and your vision represents the "problem." Next, determine the "solution."

The "solution"' includes defining project phases, setting goals in each area of business, developing priorities, determining time lines, allocating financial and human resources, delegating responsibility, implementing the plan, measuring results over time, and adapting to changing conditions. Once momentum is established it becomes fairly easy to periodically update and adapt specifics of the plan based on changing conditions. To develop momentum and gain benefits, when should you start planning?

The best time to start formal strategic planning is now. The sooner you start, the sooner you'll get onto the road of your personal vision for success, instead of just wandering down whatever road you're currently on. As Lewis Carroll wrote in Alice in Wonderland, "If you don't know where you're going, any road will get you there." Who will help you drive down the right road?

The best planners are those who think strategically, that is, about the future. Sometimes individuals within your company have this ability and desire. But, they must have time available and some practical experience to facilitate the process. Numerous software programs are available to help executives develop plans. Some are great, some are time wasters. Whether or not you do it in-house with or without software is a personal style, time, motivation and cost/benefit decision.

Firms that specialize in facilitating and implementing the planning process can provide invaluable assistance, especially to set up the initial planning sessions, create the first generation plan, and establish momentum. Some firms also help implement specifics of the plan if you do not have the internal resources to do so. Ask trusted advisors like your CPA, attorney or banker for referrals.

Sometimes your CPA, attorney or other advisors can help facilitate the process if they have experience with business planning. A independent advisor can help set the stage, stimulate creativity, keep the process moving, and avoid bottlenecks caused by politics and personalities.

Strategic business planning can help your business prosper, become stronger and help accomplish personal goals faster and more effectively than by not planning. If you have questions or comments about the process please give me a call.

Allan Vander Hamm, CPA, ABV, is with Berntson Porter & Company, PLLC in Bellevue WA, a full service provider of certified public accounting and value added financial services. He specializes in business valuation, business sales and acquisitions, and strategic planning for clients in the contracting, light manufacturing, wholesale and service industries. He can be reached at 425.454.7990 or avanderhamm@bpcpa.com.