Ballast Client Planning Playbook

A Framework for annual Planning & Building the “Annual Operating Plan”.

Annual Planning

Summary

The purpose of this document is to prime you, our client, for an annual planning session with your Ballast engagement team. The document will:

• Explain the process and outcomes of our planning process;

• Discuss Ballast’s fundamental beliefs around planning;

• Distinguish ‘Annual Planning’ from ‘Building the Annual Operating Plan;’

• Help you to understand and navigate various stakeholders that may be involved in the planning process;

• Prepare you to answer a variety of questions that may be asked as part of the planning process.

why do we plan?

We believe that planning is an incredibly valuable process because it forces conversations amongst stakeholders that do not occur during ordinary business operations.  Planning forces conversations that occur outside of the normal cadence of work.

Key Reasons to Plan

  • Planning elevates you out of the details and helps you to see the bigger picture;

  • Planning challenges you to question your existing underlying beliefs and assumptions on the business;

  • Planning confirms your near-term alignment (or challenges our lack of alignment) with long-term plans for the business;

  • Planning gets the management team and Ballast on the same page regarding:

    • The opportunities that are available;

    • The goals we seek to achieve;

    • The challenges that stand in the way;

    • The investments and interim steps we must take to achieve those goals;

    • Planning creates a foundation for accountability within the organization.

The Ideal Results of the Planning Process are:

  • A mutual understanding and agreement/buy-in of the direction and initiatives of the business for the next year.

  • A defined set of SMART goals to be achieved – these should be strategic in nature (we may scratch the surface of tactics required to achieve those strategic goals, but be careful to avoid digging too deep at this stage).

  • A sense of comfort/confidence in the plan by challenging assumptions and understanding the costs and risks incurred in attempting to accomplish the plan.

‘A Fools Errand’

You must recognize that most of the time you will not reach your plan exactly the way you envisioned it during the planning process. Note that none of the above reasons/results included ‘predicting the future of the business.’ That is because predicting the future is a futile effort. We create a plan for our default course and recognize that as a business we need to be nimble to adjust for unforeseen circumstances.

“In preparing for battle I have always found that plans are useless, but planning is indispensable.”

– Dwight D. Eisenhower

Ballast’s beliefs around the planning process

We have extensive experience helping businesses perform annual planning and building annual operating plans (intentionally distinguished, which we’ll explain shortly). As a result of these annual planning sessions with our clients, we’ve developed a set of beliefs that we think are important for our clients to consider in preparation for planning:

Uncertainty is Not a Reason to Avoid Planning

Do not let uncertainty paralyze the planning process.  We often hear something along the following lines from new clients, “I can’t predict the future, so this is a waste of time.  Let’s just make sure we’re strong enough to handle what may come.”

Planning isn’t about predicting the future.  It’s about testing assumptions; it’s about understanding the impact of decisions.  It’s about preparing the team to think through responses to situations.  Planning is about building a framework of accountability. 

Planning Should be Challenging

If done well, planning is hard.  It is meant to challenge assumptions and question past decisions.  This can be a somewhat painful process.  The planning process requires patience and empathy.

Learn to use the planning process to challenge assumptions and underlying beliefs and do not avoid the hard conversations.  Do not make the mistake of taking the ‘SALY’ approach to planning (Same As Last Year).  This approach ignores all the benefits of having the hard conversations that can unearth important truths.

The Annual Operating Plan is Not Meant to be Comprehensive

Remember that we are building a strategic plan, not identifying every single tactic required or developing every scenario we could face along the way. These phases of the planning session should not become overly detailed. ‘Getting too deep in the weeds’ can be debilitating, it can be exhausting, and it can undermine the outcomes of the planning process.

What’s the difference between ‘annual planning’ and ‘building the annual operating plan?’

While these activities sound indistinguishable, they are quite different activities that are related to each other.

  • Annual Planning is the process of setting the most critical goals for the business for the year in the context of a broader strategic business plan.

  • Building the Annual Operating Plan (AOP) is the synthesis and distillation of the annual plan into a financial forecast model.

The Annual Planning Process

The annual planning process is the means to come together to understand the most important goals that the business (and Ballast) should be focused on for the subsequent year. Traits of the goal-setting process:

  • Goals should be aligned with the long-term plan of the business.

  • Goals should be SMART (Specific, Measurable, Achievable, Relevant, and Time-Bound).

  • Goals should not be overwhelming in quantity. Your leadership team should be able to recite the goals from memory.  We recommend no more than six goals.

    • As you canvas your goals, you may find that you have many more goals than six. Think hard about whether all of those are ‘top-level goals’ or if they are ‘sub-goals’ to achieve the top-level goal. If so, consider consolidating and using those sub-goals as tactics to achievement.

  • Goals should be challenged for validity, importance, and real business need. We should ask questions such as:

    • Does accomplishing this goal drive Enterprise Value and/or long-term earnings potential?

    • Use the value equation to test these questions objectively:

      Return / Investment
      Risk

    • Return is profit in excess of cost – does this initiative drive more long-term revenue in excess of long-term cost?

    • Investment is capital required to be invested in the business – does this initiative increase or decrease the collective $’s invested in the business?

    • Risk is the durability of your long-term earnings potential – does this initiative reduce our business risks, or potential to achieve our long-term earnings plan?

Building the AOP

Once the Annual Planning Process is complete, we use the process of building the AOP as a means to put those plans into financial context. It turns the intangible into the tangible.  

With the main goals and initiatives in place, together we mold the financial model into a version that seeks to accomplish the company’s stated annual goals, and fine-tune the pro-forma financial statements to build in the assumptions necessary to achieve them. We use this session to:

  • Begin turning strategy into tactics and actionable items;

  • Continue to identify roadblocks that must be moved and investments needed to achieve those goals;

  • Stress test the model to highlight risks to achieving those goals, in efforts to make mitigating plans and make expectations realistic.

The finished product of the Annual Operating Plan is a working document that:

  • Stretches the company to reach for goals that we collectively feel are realistic/achievable;

  • Arrives at key action-items for the management team to drive in the business;

  • Creates key performance indicators that will inform us of how we are tracking towards the achievement of those goals.

Ballast’s Involvement in Annual Planning vs. Building the AOP

It is worth noting that Ballast performs two distinctly different functions for these processes:

To support your Annual Planning process, Ballast serves as a facilitator, asking questions to help you arrive at your own conclusions and keeping discussions focused and organized. We help you apply your initiatives to the value equation to objectively challenge the importance and priority of those goals. We do not drive you to a particular outcome but instead advise along the way.

To support Building the AOP, Ballast drives the process, informing you as the client what you need to provide us, challenging the reality of the assumptions that are input based on the Annual Planning process, and highlighting the risks/challenges that we see in the plan based on our experience and your historical performance.

Not all clients want/need Ballast to support the Annual Planning process. Some clients prefer to manage that internally, hire outside facilitators, or perform this function between the founders/execs/board members. These are often more time-intensive sessions that may require Ballast time commitments outside of scoped hours.

Ballast always drives building the AOP, it is a necessary function to the value we provide to our clients on an ongoing basis.

While we are not always involved in the Annual Planning process, we know the results of that process (what are the key goals/initiatives that came out of the annual planning process), as that information is crucial to our ability to drive the AOP build.

Ownership and Stakeholder Considerations

As a leader of a business, you often must play mediator between a number of different stakeholders (this word used carefully to expand beyond just your shareholders). This is never truer than during the annual planning and AOP-building processes.

Annual Planning is Somewhere Between a Democratic and Autocratic Exercise

It is important to recognize that there is not a ‘one-size fits all’ approach for how inclusive your annual planning process should be. In general, we believe that the founder/owner always needs to set the initial top-level goals for the company to be achieved, with the support of leadership team members, outside consultants or facilitators, and board members. How much detail is dictated from the ‘top down’ vs. the ‘bottoms up’ has greater variation. In general, we feel that companies (both with venture-backed clients and operating business clients) that have reached greater stages of maturity should begin leaning more on their department heads/leaders for turning the strategic goals into tactics and requesting the resources necessary and highlighting the roadblocks to achievement.

It is important to recognize the double-edged sword of including employees in the planning process:

On one hand, employees of the company can have ulterior motives besides managing the direction of the business when it comes to their input into the annual planning process. We frequently see sales-leads ‘sandbag’ sales expectations (either depress total sales goals or inflate costs required to achieve said goals) to give them an easier bogey to beat.

On the other hand, employees are ‘in the trenches’ and can provide valuable input to ‘ground’ your goals and may have creative means to achieve them that you had not thought about because of their unique perspective.

It’s important to recognize this in how you as the founder/CEO manage the goal setting and planning process with your team. It also is important to consider carefully aligning bonus and incentive compensation for these employees to attempt to minimize shareholder/employee conflict in setting and executing on those goals.

The Annual Planning Process Serves as a Great Opportunity to Influence Shareholders to Align the Vision

If you own your business outright, feel free to skip this section. For many of you, your business is either owned as a partnership, or owned by you and several professional investors, who may have board representation in your business. In these cases, the Annual Planning Process is often an opportunity to bring everyone together to regroup and ensure that the business is still aligned with the mutually agreed upon plan either from the initial investment round, or the last planning session.

If you feel that there needs to be a shift in the plan or a realignment from original expectations, this is your time to make a convincing case for your goals. This is where it is often helpful to involve Ballast early in advance of, and alongside, the Annual Planning Process. Investors are naturally economic animals. They want to have a clear picture of the expected financial outcome of these goals before they sign-off on initiatives you propose. Using our financial models can be very helpful in ‘priming the pump’ to give you objective backing to the various initiatives you seek to propose.

Preparation for Annual Planning

Whether you choose to include Ballast in the Annual Planning Process or just the AOP build, we ask that you come prepared to answer the following questions. These questions are not exhaustive nor applicable to every client, but are common among the numerous planning sessions we have with clients:

  1. What is the overall theme of next year?  Is it a period of rebuilding, a period of growth, a period of operational improvement?  Establishing an overarching theme can help ground conversations and prevent conflicting initiatives.

  2. What are the 5-6 key initiatives you want the business to focus on next year?  How do these key initiatives work to help you achieve your overarching goals?

  3. Do your goals for next year help you achieve your long-term goals for the business?

  4. What do you see as the biggest macro headwinds or tailwinds that can help or hinder the achievement of those goals? Consider the following:

    1. Economic impacts to your buyers’ ability/willingness to purchase;

    2. Economic impacts to your supply chain (price, volume, turnover, terms);

    3. Technological changes;

    4. Employment market;

  5. What do you see as the first 3 levels of constraints that will limit your ability to achieve your goals?Capital/cash flow constraints;

    1. Ramp-up constraints (shear limits on speed to implement change/grow);

    2. Supplier constraints;

    3. Demand/market constraints;

    4. Employment market constraints;

    5. Management constraints (bandwidth, capability);

    6. Employee constraints (bandwidth, capability);

    7. Brand constraints;

    8. Technological constraints;

  6. For questions 2 & 3, what level of risk to these forces and constraints pose to achievement of the goals?

  7. For questions 2 & 3, what countermeasures and investments can you put in place to mitigate such risks?

  8. Do you have the team you need today to help you execute your goals for next year?

  9. Sometimes it’s helpful to ask yourself what might have limited your ability to achieve your goals in the current year.  How can you ensure that this limiting factor does not repeat in the following year?

Conclusion

We encourage you to take the insights and strategies outlined in this page and initiate a thoughtful dialogue with your finance leadership team. Annual planning and building an effective Annual Operating Plan (AOP) are vital steps in setting a strong foundation for the year ahead. If you find that you need additional support or resources to facilitate these critical conversations, please know that we are here to help. Our team at Ballast can offer guidance and expertise tailored to your needs, ensuring you have the clarity and confidence to execute your plans successfully. We look forward to partnering with you as you navigate this process

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