The Case for Planning
Jul 25, 2021
Don't Under Estimate the "Value" in Planning.
If a change has occurred since the often-referenced Business Horizon study in the 1980s, it is not the fundamental finding. If anything, the faster pace of change and the ready availability of information could increase the variances shown in the study.
The study reviewed six industries over a period of approximately ten years. The study left no doubt about the benefits of planning… planning of all types. The study results of planning vs. not planning are shown below:
Benefit of Benefit of
Informal Formal
Statistic Measure Planning Planning
Sales Increases +52% +75%
Earnings Increases +40% +84%
In terms of performance a mid-sized company at the end of the study period with (a) no planning, (b) informal planning or (c) formal planning would be as follows:
Sales Earnings
(a) No Planning Baseline 10,000,000 1,000,000
(b) Informal Planning 15,200,000 1,400,000
(c) Formal Planning 17,500,000 1,840,000
The increased value of the business is significant. With the benefit of formal planning the value of a business could easily be over twice that of a company without these benefits. On a linear basis the selling price for your business should be 1.84 times higher, but the improved revenue and earnings growth rate would have an additional positive effect on the price achieved in a transaction.
In this over simplified example the sale price for the business could be potentially increased from $5,000,000 to $10,000,000. Clearly, the time and effort necessary to implement a sound planning system can create huge financial benefits when the business is sold. There are also the near-term benefits of creating a more easily manageable business, improving annual cash flow, and consistent year-to-year wealth creation.
