8 keys to create an effective annual plan for 2024

Patrick Whatman

Published on November 29, 2023

Annual planning season seems to arrive earlier each year. It can take months to do the analysis, brainstorming, and forecasting required. Plus you need precious time with the board, executives, managers and team leaders.

For some, it starts at the end of Q3. Yet you still struggle to deliver it in time for Q1.

That’s normal - perhaps inevitable - an annual plan is a mammoth achievement after all. But it doesn’t mean you can’t make improvements and do better this time around.

This article gives a brief intro to annual planning, the nuances of planning, strategy, and budgets, and then eight key ways to make your planning process a success.

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What is an annual plan?

Your annual operating plan details the human and financial resources, initiatives, and actions that will help you achieve your goals for the coming year. It should include the specific goals for the next year, and the key activities to reach them.

While it shouldn’t list out every individual’s contribution, teams and team members should be able to see where they fit into the plan.

Among other features, the plan should include:

  • Goals for the coming year

  • Strategic priorities to achieve these

  • Tactics to put the strategy in action

  • Checkpoints or milestones to measure success against

And ideally in relatively few words. With a detailed glance, the reader should know what the company is going to do next year.

Annual plan vs strategic plan

Strategic and annual plans are related, but not the same thing. The simplest way to explain a strategic plan is to think of your “big bets” - the core objectives to ensure you reach your business goals. You likely only have a few: a new product line, expansion into new markets, or a fundamental change in your business model.

And the strategic plan will likely last three or even five years - far beyond a single year. Annual plans - by definition - do not.

Your annual plan is therefore the actions and initiatives for the coming year which will help you achieve the broader strategy.

Annual plan vs budget

These two tools also go hand in hand, but aren’t exactly the same. An operating budget is the financial justification or rationale for your annual business plan. Because if you can’t justify or afford the resources required to complete your action plan, that plan is doomed to fail.

Whether you create one before the other or attempt both in unison is up to you. But you’ll almost certainly have to revise each when you see the other.

If you can’t fit your plan within the budget, your plan needs to change. If your budget doesn’t reflect the clear company priorities for the next year, it too needs rethinking.

Annual plan must-haves

Your annual operating plan will take whatever form works best for you. But to be successful, you’ll need to include the following:

  • Executive summary or overview to tell the story behind your plan

  • Goals or objectives

  • Clear KPIs or OKRs to measure progress

  • Actions and initiatives, mapped out in a timetable for the year

  • Resource requirements - backed up by the budget

  • A process for review and reporting on progress

Perhaps the hardest part is telling that coherent story at the top, and managing to reflect it throughout.

This is crucial to getting buy in, and helps the plan really land with stakeholders.

8 keys to an effective annual planning process

As we said above, it’ll never be perfect. And it’ll always be hard work. But these things should help to create a more effective annual plan.

1. Close the previous year as quickly as possible

There’s an inconvenient truth when building your annual roadmap: past performance should inform future plans, but most companies hope to create their new plan before the end of the year. Which means the annual close hasn’t finished, and you likely don’t know your true landing position.

Of course, by the end of Q3 you can typically tell how the past year has been. You know your major wins and failures, and have a general sense of direction for the year to come.

But the quicker you can close the books and have “final” numbers for the year (or even the previous three quarters), the more confident you can be in your data.

For this, you need likely need the right combination of clear communication, efficient processes, and finance automation.

Whether you can actually close the books before you plan is always debatable. But you need as much accurate, reliable data as possible to successfully do the next key step.

2. Take stock of your current position

“Budget is one of those things where you’re constantly iterating,”says Stripe’s Head of Global Finance & Strategy, Saoirse Fahey. “We’re learning and iterating our approach, fine tuning it every year. Every year we do a debrief and find what we could have done better on the back of budgeting.”

Next year’s plan will always be informed by this year’s performance.

In particular, try to assess current performance against the goals you set this time last year.

  • Were those goals helpful? Did the process of setting them make sense?

  • Did they propel the company to its current position, or have you landed here in spite of them?

  • What needs to change to get you to the next milestone(s)?

It’s very rare that everything went to plan all year. Your next steps are always directly informed by what went well, where you fell short, and how closely you actually followed the plan in the first place.

3. Select the key objectives

There’s always room for argument, but ideally not with the absolute core of the plan. You should at least be able to agree on the strategic big bets for your business next year. How each team contributes and the smaller actions come next.

AsTalend’s Sherilyn Kamga explains, “once we all agree on the pain points and the value of removing them, bandwidth and workload are simply challenges to overcome. Which might mean outsourcing much of the work or finding other resources within the company.“

So how can you (pretty much) achieve consensus? You have two real options: top-down decisions from leadership, or clear data that make your new year objectives obvious. Most companies tend to prioritise the latter.

Sherilyn continues, “in the past, you prioritized people with experience and insights, and they had the biggest impact on your strategy. But now that companies have a way to gather data more easily, the strategy doesn’t only rely on the executives’ vision and experience. If company data is readily available, it can be used to put together the appropriate strategy.“

ForAiven SVP of Operations & Strategy Katariina Korhonen, “everything starts from understanding the vision and strategy of the company. In a fast-growing company, there's always something to do. But being able to focus on the things that move the needle is crucial when you're leading yourself and leading teams. So understanding the big picture of where the company is going helps a lot.”

4. Set smart goals

Whether you read that as “smart” or “SMART” is up to you. In too many cases, strategic goals are so lofty or high level that they don’t impact people’s day-to-day work.

Whatever framework you use, there are five important factors for goals:

  1. Time - By when?

  2. Quantity - How many?

  3. Quality - How well?

  4. Cost - How much?

  5. % Change - From what to what?

A goal should tell you what, by when, but not how. The how comes next, when you start identifying actions to achieve these. Your key results should be clear and trackable to everyone affected by them.

Most crucially, you need to know how you’ll measure success. At Aiven, Katariina says “our KPI framework is key here. We have company-level KPIs, function-level KPIs that we’re monitoring actively, and we also put KPIs on investments. Monitoring only financial performance is not enough, it has to be complemented with operational metrics that are connected to our investment areas.”

Specific goals will ultimately be set by department leads and their teams. Here’s where your clear overarching objectives give them something to orient towards, even if the specific actions can be very team specific and specialised.

5. Choose clear actions to achieve those goals

This is of course the action part of your action plan. You’ve set smart goals and now need to select the initiatives to help achieve these. At the company level, this won’t reach down to individual deliverables.

Actions at the company level might include:

  • Significantly increase pricing or alter your business model

  • Launch a major new product

  • Sunset legacy client accounts

  • Offshore certain activities

Each of these should play directly into the key objectives above: reducing costs, increasing revenue, growing the top line efficiently, or similar.

Next, teams and individual contributors will build their own plans cascading down from the operating plan you set out here. These don’t need to be included in the annual plan (especially for larger companies).

But your annual plan needs to show teams exactly where they stand. What is required from them, and how do they contribute?

Reminder: Planning and goal setting needs to be actionable; it needs to modify behaviour and encourage people to act in a certain way. If your annual strategic plan simply lands you where you would have landed anyway, then why waste the energy in creating it?

6. Set your reforecasting schedule

Even with an ace annual plan and a great strategic planning process, things can change incredibly quickly. You need contingency plans in place for when the original plan no longer works.

For most modern businesses, this involves reforecasting. Whatever assumptions you had about your cash flow, client base, and the world at large may no longer be valid - even quarter to quarter.

Saoirse saysstandard practice at Stripe is to reforecast once a quarter. She was at Microsoft during the 2008 economic crash, and there it was once a week. Every six months is probably appropriate and sufficient for most businesses, although it of course depends on the organization and how quickly things are changing.

Some companies even opt forrolling forecasts as an alternative to yearly budgets.Maria Hedengren from Eight Roads explains, “of course you need to keep track of where you’re going to land the quarter or year, but there’s a danger of losing sight of what happens after. You need to be proactive because something big is coming up. I think the sooner you can implement the rolling, the better. It doesn’t have to be super detailed, just a high-level view.”

Whether you choose an annual budget or rolling forecast is a key choice for your finance team. Either way, how you create and share your plan with other teams is also vital.

7. Work closely with stakeholders

Whether companies should usetop-down or bottom-up budgeting and planning is a rich debate. In truth, it’s almost always a mix of the two. And the measure of a high-performance finance function is in how your advice and strategy is adopted by the wider business.

Daniel Yubi, CEO of Payable, gives the example of finance and product teams. Each has its own

“For this proposition to succeed, your product team needs to understand its economic viability and expected uptake and, likewise, your finance team will need to understand how to manage underwriting, financial operations and repayments. Knowing the nuances of this revenue opportunity is essential for both teams to effectively plan, model and predict the financial impact on their business’ bottom line.”

Aligning on your forecast and plan is critical, and almost always hard to achieve. According toMika Kasumov of Abacus & Pencil, that’s because everyone sees the forecast differently:

  • Account Executive: "This is my plan on how to hit my quota."

  • FP&A: "This is the arithmetical output of assumptions I got from others."

  • SalesOps: "This is what we think will actually happen if key ratios hold steady from the last Q."

  • Various VP: "This is my haircut on other people's assumptions and ability to execute."

  • CRO: "This is what I'm comfortable signing up for and asking for investment behind."

  • CEO: "This is what I want to rally people behind - to exceed."

Your finance team really needs to embed with key stakeholders. This helps you both understand their challenges and needs better, but also ensures that they’re using the business plan as intended.

8. Communicate clearly with the wider business

The final, essential step in annual planning is adoption. How can you be sure that the whole company understands and is motivated by your plan?

There’s really no magic spell here. Even where the plan is built bottom-up, it’s the leadership team who must evangelise and energise the company around it. And for the finance team, obviously, that’s the CFO or Finance Director. Today, the CFO role is arguably more about communication and leadership skills than your command of Excel.

Gainsight CFO Alka Tandan made a conscious shift during the current economic downturn. “I became much more vocal and increased my communication. I started CFO office hours for the company where people could come and ask me questions. I started a finance newsletter for the company. I started doing a lot more education about what happens in a turbulent economic climate because I realised many of our employees had only seen the good times.”

That’s evergreen advice, but applies directly toy our annual plan. Teams will have questions, particularly where their resources are impacted. You need to anticipate and pre-empt these questions where possible, and give the context necessary for everyone to make sense of the plan.

Most importantly, keep the long-term strategy in mind. A one-year plan can be controversial or hard to swallow for some. But if it’s clearly tied to the company’s mission and vision - if people can see how their work will pay off in time - it’s far easier to keep the team rowing in the same direction.

Get your annual plan in place

As we’ve seen, annual planning is never as easy as we’d like. But it’s a valuable and frankly table-stakes part of running your business.

For finance teams, success here boils down to:

  • Access to clean, accurate data as early as possible

  • Firm agreement on the company’s biggest needs and next steps

  • A close working relationship and good processes with other teams

  • Clear, concise communication with the wider business

If you can achieve those, annual planning becomes the worthwhile exercise it ought to be.

Start right away with that first point: getting your data warehouse in order. And in particular, ensure you have good AP/AR systems and a clear overview of cash in and out of the business.

If you have to wait weeks to know your true cash position, you’ll be forever behind the ball.

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