Business plans for the 21st century
Previous articles in this series have looked at the whys and whats of business plans. John Stokdyk and the AccountingWEB team complete the series by looking at how people compile their plans and ask why they have proved so resistant to technological change.
The content, structure and composition of business plans have changed relatively little over the past decade. And the same could be said of the techniques used to create them.
The web and other technologies such as tablets and smartphones offer a wealth of new ways to both create and communicate business plans. But the tools most people used 10 years ago - Microsoft Word, PowerPoint and Excel - are just as ubiquitous in 2014.
As FD Works founder Jon Gaunt said of Excel 2013 in a recent blog, “Nothing comes close for business planning.”
During the research for this article, a clear picture emerged of three different market segments for business planning tools: the corporate end where planning and budgeting are integrated into reporting processes; the middle market dominated by Excel where the vast majority of business managers and practising accountants reside; and small company owner/managers who don’t have time to devote themselves to constructing beautiful plans - they want to capture their ideas quickly or put together a loan application or prospectus for investors.
While acknowledging these realities, this article concludes our series on business planning by exploring all the options for creating and using business plans, including Excel and its more sophisticated variants. And if change is ever going to come in this market, some of the tools being developed to cater for small business users are the most likely to shake up the Excel-based status quo.
Geoff Bristow is well qualified to assess the business planning landscape. In the 1990s he set up Decision Curve, the company that developed the Excel-based Cashflow Wizard forecasting and planning engine. The mechanism was developed more than 10 years ago with quite a bit of input from AccountingWEB members and allows users to create almost any kind of plan or forecast by completing an online questionnaire. Within minutes, the central server will send back an Excel template with all the necessary worksheets, headings, dates and formulae in place. You just add the numeric data.
In spite of Cashflow Wizard’s success, Bristow is acutely aware of the inroads web and non-Excel tools are making into the market and is currently hatching an app-based planning tool for less sophisticated needs.
As Bristow explains, “The owner-manager/numerate non-accountant market is huge, and bigger than the market of professional accountants who do modelling. Traditionally it was served by out-of-the-box business planning software such as Business Plan Pro, and now it’s going web or app.”
But an accountant doing an in-depth financial plan would very quickly get frustrated using any of the currently available web-based modelling tools or apps, he said. “You wouldn't be able to model a complex revenue recognition policy, or a detailed loan schedule that varies with performance, or any of the other details that accountants have to worry about.”
The monitoring challenge
The question posed in the first article of this series was how to ensure the business follows through on the plan and uses it to monitor progress and performance. The first hurdle to achieving this was getting the team to buy into the plan; the second was tracking performance back to the original numbers.
Printed business plans worked up in Microsoft Office create all the usual problems of version control and inconsistency and often end up forgotten in somebody’s bottom drawer. But technology offers potential solutions for these problems.
Collaborative preparation is now feasible for Microsoft users via Office 365, or using Google Drive and Applications, Dropbox or other online file stores and web portal systems. And if people in the business have a hand in shaping the plan, they’re much more likely to commit to carrying it out.
On the second point, comparing forecasts and plans against actual numbers does happen in the corporate world, where some organisations use integrated planning tools such as Hyperion, Cognos or web-based challengers such as Adaptive Planning alongside ERP and accounting systems.
These systems allow users to model planning scenarios and carry over the forecasts to compare against actual results. But the cost of these tools tends to put them beyond the reach of all but the largest firms of practising accountants. And the corporate market appears to be almost as resistant to changes as practitioners - and just as strongly wedded to Excel.
A few years ago Adaptive Planning launched a social media environment for planning and budgeting processes. It sank without trace. Now that the hype has died down, there are signs that collaborative planning and rolling forecasts are quietly becoming the norm in some established businesses, but they are still some way off for the entrepreneurs who make up the bulk of the business planning market for practising accountants.
Planning for a new generation
According to Amy Harris, the founder of Xero add-on developer Crunchboards, the business planning software market is beginning to change, driven by a new generation of tech-savvy entrepreneurs. Now poised for its international launch, Crunchboards is designed to cater for emerging companies in creative, high tech industries where the owners are very mobile and comfortable using new online tools. “These firms are leading the way,” she said.
Crunchboards is based around reporting boards and cards. For creating business plans, the templates include full profit & loss, balance sheet and cashflow forecasts. The core reports are typically linked back to the user’s chart of accounts (in an online accounts system such as Xero or QuickBooks Online), but the boards are entirely flexible and can be used to model all kinds of scenario - from the number of starters consumed at a restaurant, to the company’s bank account, gross profit or corporation tax liabilities.
“Because it’s all in-app, you can create mini-scenarios around each item on a mobile phone, for example if you missed the bus.” And unlike a paper report, the business’s accountant can come in and collaborate on the boards to test and refine the plan.
Spreadsheets are a blank canvas, which is what makes them so flexible. But for a business users, she continued, “By the time you put it in, the data is out of date and it’s not easy to share with investors, which can be quite time consuming for a business manager who’s very busy.”
Having built plans linked to figures in the underlying accounts system, Crunchboards users will be able to report on the measures that matter to them most. In contrast to Excel, Harris, claimed, “That’s what brings the data to life.”
Assembling the ingredients
This summer’s six-part business planning series was set in motion by AccountingWEB member Peternkweto who wanted to find out the main features of a business plan and what the correct format was.
To recap the advice drawn from CIMA and other sources in our earlier article, a typical plan will be anywhere from 10-20 pages and include both narrative and numerical information along these lines:
- What the business does and how it makes its money
- Market research and SWOT analysis
- Explanation of why the funds are needed and how they will be used, backed with details of of how potential lenders will get their money back, plus an assessment of potential risks and how they will be countered.
- Details and CVs of the management team
- Financial information including three years’ trading accounts (if available), financial forecasts for the next three to five years, and a cash flow forecast for the next 2-3 years (or in the case of a start-up or turnaround, until the business moves into profit), indicating the amount of funding needed.
Excel sets the template
But how do you go about preparing and presenting this material in a coherent way, asked Glennzy in another business planning Any Answers query back in March. Most accountants in business and practice are familiar with Excel, and it has the ability to import and export the figures to and from all sorts of other applications, from accounting systems to Microsoft Word.
Typically for an accountant, Glennzy was confident working with forecasts in Excel or Sage Winforecast, but struggled when it came to dropping tables and graphs into a Word document.
The consensus view was summarised by Kent accountant, who suggested developing a master proforma in Word and tweaking to output new plans. Ric Payne of Principa went further and recommended picking up a business plan template from the Microsoft library or from other trusted sources and using them as the outline for your own templates.
This approach ensures the numbers remain consistent, by linking the P&L, balance sheet and cashflow within an Excel workbook.
But in the 21st century, one might be tempted to ask who says you have to print the plan out as a PDF or Word document. Unfortunately, business plan consumers do.
Jiten Modhiwadia, from Exact’s UK cloud solutions division, said that while business plans are vitally important as a discipline for business owners to think through and test their ideas, ultimately they are more about the audience that will see them.
“Banks drive the majority of business plans,” he said. “Because they demand plans to mitigate the risk of losing the money they’re lending.”
Banks and investors still want to see those classic, plastic-bound A4 reports. According to AccountingWEB members Admor and Glennzy, they like a bit “more than Excel”, typically padded out with professional looking graphs and pie charts that come with specialist tools such as Palo Alto's Business Plan Pro. “Bank lads love” that sort of thing, which increases the value to your client, according to Glennzy.
Seeing the plan through
As business intelligence manager at West Country accountants Milsted Langdon, Chris Downing works with a team of six who have their “hands on business plans all the time”. The types of plan will differ considerably - from the entrepreneur’s ‘what should I be focusing on for the next six months’ aide memoir to more tightly focused forecasts looking at specifics around issues such as loan requirements and repayments, or staff salaries.
Downing and his colleagues adopt a horses-for-courses approach to planning. Many of their clients use Sage accounting software, so it makes sense for them to work up fairly simple budgets and payment plans with Sage Forecasting. “It will produce a report on your expected cash outflow in an Excel template that you can import to your accounts system at the headline level. They can also bring in their own P&L and report back against predetermined targets,” he explained.
Because it works as an add-on to the Sage 50 Accounts program, but can also bring in information from other applications, Sage Forecasting allows the user to operate in a single environment, linked to Excel. “If at future they want to take the forecasting on themselves they can do it relatively inexpensively,” Downing said.
AccountingWEB member rawa363 is a regular user of the module and endorsed this view of Sage Financial Forecasting’s capabilities and ease of use: “I have had numerous comments from bank managers about the professional quality, presentation of the figures and comprehensiveness.”
For more complicated scenarios the Milsted Langdon team will turn to Winforecast, a Sage product that is nearing the end of its official lifecycle.
The Winforecast reporting suite doesn’t rely so extensively on Excel, and can generate Word, PDF and spreadsheet files. Winforecast is particularly good if you want to do consolidated forecasts showing the effect of inter-company transactions between holding and trading companies at group level. Although it’s not very widely publicised, if you ask Sage nicely, they will still sell you a copy, Downing said.
But when it comes to more tightly focused forecasts and models around specific proposals and projects, Downing admitted that his team will return to the accountant’s best friend: “We go the Excel route.”
Milsted Langdon runs a high-powered, specialist planning team with skills that are beyond the reach of most businesspeople. According to Jiten Modhiwadia, the big frustration for less experienced entrepreneurs who want to refine their plans is “asking lots of questions and not getting results because they’re having to learn technology and software that are quite restrictive”.
“We are in an attention economy,” said Modiwhadia. “We expect delivery of information in a dynamic way without wasting too much time.”
Amy Harris from Crunchboards echoes this view. “There’s a mindshift for everybody. Investors and everyone handing out the money want to look at actual results - as you need to as the business owner. The old style methods made life difficult. Accounts had stuff they would use to do your bookkeeping a 6-8 week timescale. That’s not how you run a business in today’s society.
“Technology has changed things. You can do them in real time. It’s about empowering people with the information they need to run the business, and not making them run a marathon to get it.”
Cloud planning tool links to most GLs
Web-based collaborative plans & budgets
Enterprise planning, budgeting & forecasts
Enterprise performance management suite
Enterprise performance management suite
Original Q&A-driven template engine
Similar to Cashflow Wizard
Vast library of templates available
Palo Alto’s market-leading program
Similar to Cashflow Wizard
|Sage 50 Forecasting||Sage 50-compatible tool; replaced...|
Versatile standalone application, no longer officially supported
Original Q&A-driven template engine
Flexible online modelling & reporting
Freemium modelling and drafting tools
|FigureWizard.com||Online tool crunches forecasts for you||£20pa|
Online tool from the Palo Alto stable
iPad app from Strategyzer.com developer
Drafting app: printing available for £1.99
Plan drafting app that can output to Word/PDF
Pricing scenario app
Tutorial app with videos and templates
Online tool from the Palo Alto stable
Android Q&A produces a plan in 5mins
This article forms part of a comprehensive Business planning series sponsored by Exact. For further advice on constructing a compelling business plan, also see: