To develop effective long-term plans, you should do the following steps:

1. Determine your personal objectives and how they affect your willingness

and ability to pursue financial goals for your business. This

consideration, often overlooked, will help you determine whether or not

your business goals fit your personal plans. For example, suppose you hope

to become a millionaire by age 45 through your business but your long-term

strategic plan reveals that only modest sales growth and very slim profit

margins on that volume are attainable in your industry. You must either

adjust your personal goals or get into a different business. Long-range

planning enables you to be realistic about the future of your personal and

business expectations.

2. Set goals and objectives for the company (growth rates, return on

investment direction as the business expands and mature). Express these

goals in specific numbers, for example, sales growth of 10 percent a year,

increases in gross and net profit margins of 2 to 3 percent a year, a

return on investment of not less than 9 to 10 percent a year. Use these

long-range plans to develop forecasts of sales and profitability and

compare actual results from operations to these forecasts. If after these

goals are established actual performance continuously falls short of

target, the wise business owner will reassess both the realism of

expectations and the desirability of continuing to pursue the enterprise.

3. Develop long-range plans that enable you to attain your goals and

objectives. Focus on the strengths and weaknesses of your business and on

internal and external factors that will affect the accomplishment of your

goals. Develop strategies based upon careful analysis of all relevant

factors (pricing strategies, market potential, competition, cost of

borrowed and equity capital as compared to using only profits for

expansions, etc.) to provide direction for the future of your business.

4. Focus on the financial, human, and physical requirements necessary to

fulfill your plan by developing forecasts of sales, expenses, and retain

earnings over the next three to five years.

5. Study methods of operation, product mix, new market opportunities, and

other such factors to help identify ways to improve your company’s

productivity and profitability.

6. Revise, revise. Always use your most recent financial statements to

adjust your short- and long-term plans. Compare your company’s financial

performance regularly with current industry data to determine how your

results compare with others in your industry. Learn where your business may

have performance weaknesses. Don’t be afraid to modify your plans if your

expectations have been either too aggressive or too conservative.

Planning is a perpetual process. It is the key to prosperity for your

business.

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