I’ve seen firsthand, three different times, how a solid business plan combined with a good planning process works like a dashboard to steer and manage a business through an unexpected crisis. I used it to manage the downturn in 2001. And I watched it as it worked for others in 2008, and 2020.
What makes it work? In a nutshell, it’s about having the connections between spending, revenue, business activities, tasks, and people tied together in your business plan. Then when the crisis hits, you can see its impact easily and make changes fast.
Here are simple numbers from a hypothetical retail bicycle shop showing how projected sales were going pretty much according to plan, but fell hard when the crisis hit:
Sadly, as I write this, that kind of a March and April disaster is all too common among small businesses in the U.S. this year.
In this case, you have a critical difference between what you planned and what actually happened. Here are those numbers compared, actual results subtracted from plan, so you can instantly see the difference:
To make it clear, the plan was for $18,000 in bicycle sales for March, but the actual sales were only $6,762, so the difference is -$11,238. And so forth.
Yes, you have to cut a lot to keep going. If you own a business, you know that immediately. But how do you do that? How do you do it quickly, and effectively, while optimizing your response? That’s where good planning comes in.
I liken it to driving somewhere with a good GPS in the car. Your plan was your destination, and you had a route. but the sudden change is the business version of the traffic jam. It’s time to adjust the route. That’s what you get with the planning process.
Instead of just panic reactions, you go back to your plan, where you have already made those connections between sales, costs, expenses, people, and tasks. And you adjust strategically, using that plan like a dashboard.
By the way, if you like buzzwords, the simple crisis overview of numbers in these illustrations are examples of plan vs. actual analysis, which the accountants also call variance analysis.
The next step is obvious, and extremely difficult. I don’t for a minute say the process here will solve the human or even the business problems. But it is a good way to view the problem and develop solutions for the money-specific elements. For business owners, it can be the difference between a a considered solution and a mere panic reaction.
With a well-run planning process, you take the existing plan and save a new version of it as your crisis plan. Then you make changes in the crisis plan. This is just common sense, but if you want buzzwords, it’s also called scenario analysis.
Clearly, in the new crisis plan, you need to cut expenses, and costs if you can, and postpone all the spending you can. For that, you start with the existing business plan, and then make changes. For example, for the bicycle store, here’s what the budget was, before any changes:
And now, with that in mind, you go row by row looking at what you can cut. For example, in this case the business owner negotiated a significant break on rent, because it was that or go out of business. And they cut marketing expenses completely, since the store wasn’t allowed to open for several months. They cut utilities drastically because they weren’t open. They couldn’t cut insurance or leased equipment because of contracts.
Those cuts alone wouldn’t have been enough. So the two owners cut their own salaries, assuming they had to do that, temporarily, to keep the business going.
This is what the new budget looks like:
Life goes on. The crisis hit, the business adjusted, and the planning process added the visibility of the dashboard or the GPS. A well-run business fills out the new crisis scenario plan projections with newly modified numbers that take reality into account. For example, in this case, here’s the modified sales forecast for bicycles. As of April, the owners expect continued problems, but a gradual recovery. Here are those numbers:
In this case, the owners are optimistic about a recovery in June, with possibly some extra sales caused by suppressed demand during the worst of the crisis.
As I said above, I’ve seen this process work during three different crises, in the software business I started and ran until retirement. With the tech industry crash in 2001, I had to manage through laying off five people, out of 35, to keep going. When the crisis of 2008 hit, I was chairman not CEO. Our sales tumbled from close to plan to 30% below plan in two months. But I watched as our CEO used this same method to hold on to all employees and cut other expenses.
In that crisis, I was still burned from having to cut people in 2001, so I pressured the CEO to cut some payroll. She resisted the suggestion. Using the same method I show in this article, she managed the details very carefully in the steering and GPS mode, and told me in November that we could avoid letting people go if sales came back by April. And they did.
In our 2020 crisis, that same CEO who navigated through 2008 was on top of the plan, as always, when the shutdown and economic downturn hit. As I write this, she has used this method again, and we kept all of the 80 employees through October.
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