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Business Planning and Key Performance Indicator Monitoring

Published: 06 Apr, 2009

One of the upsides to an economic downturn and a hardening of trading conditions is that it forces business owners to take a long hard look at their operations.

In conditions where factors affecting financial performance can change quickly, the need for sound business planning and performance monitoring is highlighted.

From experience it seems that very few garden centres have a clear, written Business Plan, with a follow-up strategy and action plan. This means that they are re-active, responding to changes in the market place in an unplanned, knee jerk kind of way, rather than being proactive , with a clear planned direction, and strategies in place to take them there.

A business plan is made up of many elements and supplementary plans. To start with you must have a vision of where you want your business to be in, say, five years. This means understanding the market you are in, knowing who your customers are and what are their needs, analysing your strengths and weaknesses, and recognizing threats and opportunities.

From this you can formulate a strategy to achieve your vision and goals. Your strategy must be sustainable, and you must set achievable, measurable goals.

The overall business plan will have some supplementary plans within it – a Financial Plan, a Marketing Plan, and an Operations Plan. 

The Financial Plan is made up of Sales Budget, Purchases Budget, Expenses and Cashflow Budgets. These assist you to control and manage your finances, so that there are no “Surprises” when circumstances change. Budgets can be fine tuned and adapted as circumstances dictate.

The Marketing Plan addresses Promotion and Advertising, Product Range, Merchandising, and Customer Service. Of these, perhaps the most important is the Promotion and Advertising Plan. It allows you to purchase and secure product in advance, to negotiate better buy prices, to book advertising space at best price, at a time and place you want it, to organise in-store signage and point of sale material in a timely and cost effective manner. It also helps to reinforce the strategy, direction, and positioning of the business as set out in the business plan.

Last, but by no means least, is the Operations Plan. This covers off such things as ordering and receiving, reporting and monitoring, staffing, security, accounting, premises, and any compliance issues. It allows you to establish systems, methods, and processes for the smooth day to day operation of the business.

The business plan doesn’t need to be a long, weighty tome. It does need to be a clear and concise statement of the goals and objectives of the business, and the strategies and action plans to achieve these. It is important that everything you do in the business – purchasing, merchandising, signage, pricing, layout, advertising, customer service – is consistent with your plan.

Having a plan and direction, and sticking to it, is just part of the equation. The next step is to monitor your performance across a range of indicators. These are known as Key Performance Indicators, or KPI’s.
 
Traditionally, most garden centres have focused on maximising gross margin, often by putting up prices and widening the gap between themselves and big box mass merchandisers.  While achieving a good gross margin is important in maximising profit, there are other factors which impact on profit just as strongly – sales, turnover size, product mix, stock level, stock turn, wages, operational costs, marketing costs, finance and occupancy costs.
 
Your business plan sets out what you want these elements to be. Reporting and monitoring appropriate information tells you how well you are doing and where you need to make changes and adjustments.

KPI’s are key measurements which can be monitored monthly/quarterly/annually to quickly assess the progress and profitability of your business. These key performance indicators are:-

  • Sales, by category, compared to budget and/or last year to date.
  • Customer count compared to budget and/or last year to date.
  • Average sale compared to budget and/or last year to date.
  • Item Value
  • Wastage and shrinkage
  • Gross profit/ Gross margin by categories
  • Stock turn by categories
  • GMROI by categories
  • Expenses as a percentage of sales – Wages / Marketing / Operations / Occupancy / Financial
  • Net Operating profit as a percentage of sales

By measuring these KPI’s monthly and comparing them to last year and the current year’s budget you can make strategic and management decisions to greatly improve the bottom line.As an example you might look at ways to increase sales. Increasing sales through increased stock turns is an easier, faster method to increase gross profit than raising prices or buying better. How do we increase stockturn and how will that increase gross profit? In essence it is about improving cash flow.

This might mean compromising on gross margin, but using volume sales to turn product more quickly and generate more profit dollars. Often buying week to week, maintaining product’s freshness and quality, is better than buying in bulk for a better price, but increasing the risk of deterioration and loss. Stock turn can be increased through better pricing, better promotion, and better signage. Slow moving stock is better cleared at cost and that money reinvested in quick moving product that will generate profit. Monitoring KPI’s will highlight these opportunities for you and allow you to take action effectively.

You can also use this information to compare your performance across all categories with other businesses of similar size and turnover as your own. This is known as benchmarking. If you learned of a garden centre that had doubled sales and had a 75% increase in gross profit over the last four years wouldn’t you like to know more about profitability, stockturn and GMROI  by category, and ranging, strategies, and operational functionality? If this store’s wages, vehicle, water and other costs are lower than yours, wouldn’t you like to know how they are doing it? Benchmarking will allow this to happen.

If you don’t have a business plan, if you are not reporting and monitoring your Key Performance Indicators, now is the time to take action. A planned, balance approach to your business and good financial management will lead to increased profitability, the ability to fund on-going improvements to keep up with competitors, and enjoyment and satisfaction in your business.

This article has been written by John Russell with information extracted from the Brett & Associates Manuals for Business Planning and Financial Management

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