Don't Under Estimate the "Value" in Planning. 

If a change has occurred since the classic, and 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 Projected

Statistic Measure                  Planning               Planning Selling Price

Sales Increases                          +52%                     +75% 5,000,000

Earnings Increases                    +40%                      +84% 10,000,000

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 Pricing Metric

(a)     No Planning Baseline                10,000,000         1,000,000 5X Earnings

(b)     Informal Planning                      15,200,000          1,400,000 5+X Earnings

(c)     Formal Planning                        17,500,000          1,840,000  6X Earnings

The increased value of the business is significant since buyers will pay slightly higher selling price multiples for businesses with faster growing revenue and cash flow.

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.

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