Managing a business is a stressful evergoing task. Keeping tabs on expenses, income, gains and loss, inventory and to top it off, future plan is a huge mountain of things a businessman needs to tackle. A good businessman, however, brings in techniques and various methods to make sure all this is well managed. One of the most talked-about methods of business management is Plan Vs. Actual Comparison. This technique has been helping thousands and thousands of businessmen manage their business better. Let’s take a look at Plan Vs. Actual Comparison is and how is it helpful.
What is Plan Vs Actual Comparison?
To put in simple words, you put your plans from the past one side, the present scenario on one side and compare it point to point. It is simply reviewing what you forecasted and how it really turned out to be. Accountants and financial analysts use a very similar method called variance analysis, which is the same concept with a different application.
What is a ‘Plan’?
A plan is a systematic course of action and expected result(s) of those actions. You may plan for one month in advance, three months, or even longer depending upon your level of comfort and type of business. Once you have charted your plan, you need to prepare a checklist of all tasks and actions you will be taking. If possible, also sort them by priority and how much input they would be needing. You don’t have to be pinpoint accurate here since this is just projection and not actual accounting.
There are multiple factors involved with regard to your business while planning apart from just sales and finances. As a businessman, your plan for your business ought to be holistic and should cover all the aspects and parameters which affect it such as seasonal changes in demand, marketing plan and budgeting, operations handling (making changes in operation/staff), timelines for planned changes(if any), etc.
What is an ‘Actual’?
Your actuals would be what became of the plan you had made at the beginning of the planning period. Actual incorporate the same parameters in the same order of priority; they involve accurate numbers and what really turned out. Once your forecast(Plan) and result(Actual) are available, you can place this data side-by-side and compare it right away.
Why Should One Plan and Compare?
Comparing the results of your efforts with what you had anticipated gives you deep insights into what you could do and what you couldn’t. It also tells you what you should do and what you shouldn’t. If your results are mostly worse than your anticipation, you can make a note of factors that might have been responsible for this.
Planning is always a very good thing to do. It gives you a clear pathway and set of things you would need to do in order to make the most of your business. Setting goals and targets is a sure shot way to stay afloat in these times of tough competition. Also, a good businessman always thinks ahead for the future and growth of his business. Planning helps you set short, mid, and long term goals. Keeping track of your progress gives you insights into what you’re doing right and what you need to do better. All of this results in you making fewer mistakes going forward and learning more and more as you continue your journey along the business path.
When Should You Compare? What are the factors involved?
Making a 5-year plan and then regular comparison with dynamism is the most efficient path one businessman can take. Making a plan and then comparing only at the end of the time period will only serve to waste your valuable time.
Let’s take an example. you anticipated a sale of 1000 units with an advertisement and marketing budget of 500 bucks in one month. Your sales went up to 2000 units with marketing making little impact on the sale.
This means that there is a demand for the particular product in the market and your focus needs a tweak. Also, this also means you have been underestimating yourselves and could do better.
In case the sale was, say only 800 units, that means your anticipation fell short somewhere. Maybe you need to adjust your marketing budget in coming month.
All this while, remember you made a 5-year plan and your end goals are targetted towards what you want to achieve at the end of that time period. Comparing the plan and actuals however at the end of those 5 years seems, of course, silly. A monthly or quarterly review of the plan based upon the comparison results makes the most sense to the smart businessman.
This comparison should not, however, be limited to just the financial aspect. A complete and holistic approach would give you the bigger picture to help you understand your progress towards your end goal. It is possible that while comparing, you get insights to achieve your goal faster; maybe your goals will be delayed from the looks of current results. This helps to even make changes to your goals and make them more practical and realistic.
To Sum it Up
A good businessman always thinks ahead of time. He determines and tries to accurately predict events in the future and makes provisions accordingly. Once the future time arrives, he takes a look at what forecasts he made and how they turned out to be. Plan and Actual are never the same. The difference is bound to be there. What is important is the lessons that are to be drawn from these differences and making changes to the next forecast accordingly. Keeping one’s goals realistic and making timely changes to the short-term plans to achieve them, in the long run, serves the purpose of making one a successful entrepreneur.
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