I often hear words such as: Strategy, Planning, Process and Added value.

Somehow over-verbalized, always reinterpreted to “get something out” of any situation, the concepts lose their content and become abstract, inaccessible to the common man.

I have always believed in the simple things, I believe that the true finesse of a professional is not proven by, complicated flows and rigid rules, in the number of stamps applied or signatures on forms but in things that go together, simple and almost unseen. I like economists that do their job so well that you feel like they didn’t do anything.

My approach to planning is extremely simple. You can use absolutely any tool you want, from pencil to SAP or Excel, the important thing is to know 2 key things: Profit and Cash flow.

The first step in understanding planning is exactly this: Profit and Cash Flow always go together, and the first choice to make is how you track them both. My advice would be to plan on income and expense flows (ie profit) and then apply a profit-to-cash transition formula.

There are many arguments for which I recommend this route, largely related to data comparability and how they are evaluated and used by state institutions. At this point it is assumed that we already know what our business mission is and what the difference is between a payment and an expense. If not, I recommend clarifying these concepts before moving on.

Once we have established that we begin the planning by profit, that is to say income and expenses, a logical thread of the work is required, as simple as possible.

I will describe it very briefly and promise that I will link 4 more articles to it to describe in more detail the concepts:

• The first budget of a company is the sales budget.(Turnover, most common economic indicator). It matters how much you can produce and under what conditions, but in the end, the income will be described not by production capacity but by the ability to sell those services or products. In writing this budget, various factors are taken into account, where the fineness of the planning as well as the objective decisions comes into play. Variations will always have concrete arguments, effective measures that can be turned into goals to be pursued.

The cost area describes the marketing budgets. In other words, all growth and maintenance sale plans translate into marketing initiatives and their costs. Attached to the sale is the sales budget, i.e. all costs incurred in the actual sale and/or transport of the goods sold.

• The second budget is the production or operational budget. When planning the operation budget, we see what human and material resources we need in order to “produce” the goods or services we have planned in the turnover. In this stage, the staff is dimensioned according to the planned sales evolution. Depending on the structures you use, you can do it under budgets: e.g. materials.
  
• Next comes the investment budget, it completes the requirements for the expected production capacity. Each investment is analyzed from the perspective of the duration of use and the way to cover it from the profits generated. (Return of investments and derivatives).
• The last budget is the general one, of the structural costs. In it we include the indirect personnel (the support functions of the company) but also the general administrative expenses: from the salary of the general manager to the costs of the license for the legal software used. This cost speaks about labor productivity as much as the production budget. The logical thread here is that we cannot produce a lot of our product of “service” and keep production costs as low as possible, if in fact we are not profitable enough to make the effort worthwhile. A structure cost that exceeds 20% of the total costs can hide a non-performing driving device, while a very small structure cost, up to 10%, can hide a series of unfulfilled responsibilities. (Example: if you did not meet the conditions of the labor code regarding the evaluation of the personnel surely the HR costs are lower now, but they are actually hiding unfulfilled legal conditions, possible future fines and litigation, etc.)

After you have taken these steps, you should already have a view of the future profit but also a list of measures to perform (marketing, HR, etc.) to get there.

As important as it is to know where we are and where we are going, it is just as important that there is a pursuit of these objectives. Only by following the implementation of the plan can we say that we have a strategic management of the firm.

What remains to be done is to adapt to everything we do and follow market opportunities in the context we are in.