Does the numbers man know what the marketer's doing and vice versa?
I’m talking about SMEs rather than large corporates, because SMEs comprise the majority of all businesses in the UK and also it would also be foolish to suppose that this combination of skills does not exist in abundance in larger organisations. Whether they use it or not is a completely different matter!
Many SMEs have a real scepticism about business and marketing strategy and planning. They get drawn into the process reluctantly and often see disappointing results. This article explores one of the main reasons for the failure of SME business planning and offers a straightforward solution.
When SMEs look for a business plan, they often turn to their accountant for help. After all he’s the numbers man and a business plan; well it’s just a sheet of numbers isn’t it? Something we have to show the bank every now and then to tick a box – right? WRONG!
It often ends up as a sheet of numbers, because that’s an easy way to represent the plan as a summary. But it also ends up like this because it will only be those with a financial understanding that ever get involved in its preparation or analysis. So let’s just follow that process and see what happens.
SME owner – “I need a business plan with some forecasts for the next twelve months”
Accountant – “Great, I’ll knock up an Excel spreadsheet and you can give it to the bank – what’s your turnover likely to be for the next year?”
SME owner – “Well, we’re hoping to add about 15% on top of last year’s figures”
Accountant – “So that’s going to be about £1,200,000 isn’t it, remind me, is there any seasonality?”
SME owner – “No, not really sales seem to be evenly spread”
Accountant – “Well that’s the top line done; we’ll aim for £100,000 of sales each month. OK?”
This is how the process works more times that you can believe! With all the best of intentions, the accountant then calculates gross margins based on historical experience, adds 15% to the general overheads and bob’s your uncle a new business plan for the next twelve months has been constructed.
SME owner is happy, it’s cheap, it’s done, it ticks the box for the bank or other interested parties. The accountant’s happy, it didn’t take long, there’s a degree of credibility in his assumptions and a few more hours to add to the annual bill. The bank’s happy, because the accountant did it and so it must be right, he really understands the numbers!!
But it doesn’t work and nobody seems to care let alone understand the absolutely flawed premise of its construction.
Turnover, the top line of the business plan is not a guess! It is the answer to a series of strategic and tactical marketing questions that the business and its advisers should be asking in the construction of the plan that make the top line the real driver of the business.
A criticism of the role of marketing by many that do not truly understand it, is that it is hard to measure and as such an opportunity for the creative staff to run riot without accountability! Nonsense!
The biggest misconception about marketing is that it is just about communications rather than the strategic planning of the business. Decisions about target segments, competitive positioning and routes to market should lead any promotional activities, but again SMEs are seldom trained in these areas and consequently indulger in haphazard promotional activity, often spurred on by so called marketing consultants without a specific qualification to their name and unable to differentiate their Porter from their PIMS.
But hey, we’re in danger of forgetting the bean counters while all this infighting is going on! While we’ve been debating strategy and tactics, they have created the top line, calculated the gross margin, racked up the overheads by 15% and re-calculated net profit before tax and, with a flourish, added on a headline cashflow forecast for good measure.
There on the table is a conventional financial model and the owner and his advisers are all patting each other on the back for another job well done. But hang on. Where is the correlation between top line sales and the marketing budget, identified somewhere amongst the vast array of overheads to the business. Where is the marketing activity forecast, sitting below the cashflow and tying in activity, to budget spend, to top line income in a structured, time sensitive, numeric model based on robust conversion ratios.
Do what! Now the bean counter understands what we mean, but many marketers are totally fazed by the prospect of converting activity to scheduled and budgeted planning, but this is the key to the plan and its future success or failure.
So here’s the question for marketers – what do you do, when and at what cost, to deliver the top line income of £100,000 in October 2007 (or any other month’s target for that matter)?
Show me a model of the communications activity, show me the metrics, show me the budget allocation in the financial model, show me the sensitivity analysis and show me plan B.
In every business plan drawn together by SMEs and their advisers, it is critical to analyse marketing communications activity, (direct marketing, public relations, personal selling, sales promotions and advertising) and all the sub activities therein to set out in within the financial model, the individual activities and costs that WILL generate the top line.
Then let’s shift the argument away from the measurement and effectiveness of the marketing team (this will now be proven) and start looking at just why overheads never stay in budget or the cost of goods sold seems to edging above the predictions. Answers please Mr Accountant!
Many SMEs have a real scepticism about business and marketing strategy and planning. They get drawn into the process reluctantly and often see disappointing results. This article explores one of the main reasons for the failure of SME business planning and offers a straightforward solution.
When SMEs look for a business plan, they often turn to their accountant for help. After all he’s the numbers man and a business plan; well it’s just a sheet of numbers isn’t it? Something we have to show the bank every now and then to tick a box – right? WRONG!
It often ends up as a sheet of numbers, because that’s an easy way to represent the plan as a summary. But it also ends up like this because it will only be those with a financial understanding that ever get involved in its preparation or analysis. So let’s just follow that process and see what happens.
SME owner – “I need a business plan with some forecasts for the next twelve months”
Accountant – “Great, I’ll knock up an Excel spreadsheet and you can give it to the bank – what’s your turnover likely to be for the next year?”
SME owner – “Well, we’re hoping to add about 15% on top of last year’s figures”
Accountant – “So that’s going to be about £1,200,000 isn’t it, remind me, is there any seasonality?”
SME owner – “No, not really sales seem to be evenly spread”
Accountant – “Well that’s the top line done; we’ll aim for £100,000 of sales each month. OK?”
This is how the process works more times that you can believe! With all the best of intentions, the accountant then calculates gross margins based on historical experience, adds 15% to the general overheads and bob’s your uncle a new business plan for the next twelve months has been constructed.
SME owner is happy, it’s cheap, it’s done, it ticks the box for the bank or other interested parties. The accountant’s happy, it didn’t take long, there’s a degree of credibility in his assumptions and a few more hours to add to the annual bill. The bank’s happy, because the accountant did it and so it must be right, he really understands the numbers!!
But it doesn’t work and nobody seems to care let alone understand the absolutely flawed premise of its construction.
Turnover, the top line of the business plan is not a guess! It is the answer to a series of strategic and tactical marketing questions that the business and its advisers should be asking in the construction of the plan that make the top line the real driver of the business.
A criticism of the role of marketing by many that do not truly understand it, is that it is hard to measure and as such an opportunity for the creative staff to run riot without accountability! Nonsense!
The biggest misconception about marketing is that it is just about communications rather than the strategic planning of the business. Decisions about target segments, competitive positioning and routes to market should lead any promotional activities, but again SMEs are seldom trained in these areas and consequently indulger in haphazard promotional activity, often spurred on by so called marketing consultants without a specific qualification to their name and unable to differentiate their Porter from their PIMS.
But hey, we’re in danger of forgetting the bean counters while all this infighting is going on! While we’ve been debating strategy and tactics, they have created the top line, calculated the gross margin, racked up the overheads by 15% and re-calculated net profit before tax and, with a flourish, added on a headline cashflow forecast for good measure.
There on the table is a conventional financial model and the owner and his advisers are all patting each other on the back for another job well done. But hang on. Where is the correlation between top line sales and the marketing budget, identified somewhere amongst the vast array of overheads to the business. Where is the marketing activity forecast, sitting below the cashflow and tying in activity, to budget spend, to top line income in a structured, time sensitive, numeric model based on robust conversion ratios.
Do what! Now the bean counter understands what we mean, but many marketers are totally fazed by the prospect of converting activity to scheduled and budgeted planning, but this is the key to the plan and its future success or failure.
So here’s the question for marketers – what do you do, when and at what cost, to deliver the top line income of £100,000 in October 2007 (or any other month’s target for that matter)?
Show me a model of the communications activity, show me the metrics, show me the budget allocation in the financial model, show me the sensitivity analysis and show me plan B.
In every business plan drawn together by SMEs and their advisers, it is critical to analyse marketing communications activity, (direct marketing, public relations, personal selling, sales promotions and advertising) and all the sub activities therein to set out in within the financial model, the individual activities and costs that WILL generate the top line.
Then let’s shift the argument away from the measurement and effectiveness of the marketing team (this will now be proven) and start looking at just why overheads never stay in budget or the cost of goods sold seems to edging above the predictions. Answers please Mr Accountant!
posted by Marketer at
6/19/2006 12:57:00 PM
