Today we rebrand from "Frameworks & Finance" to "SMB FinanceOS."

A bit of a programming note: over the next month or so, you'll likely see emails start coming from newsletter@smbfinanceos.com.

So, while this email has come from the same place today, add that email address to your address book.

If you manage to get two emails a week or two in there, don't worry... just part of the transition.

Ok, now onto the fun stuff: annual planning.

Today we introduce our annual planning series that we'll break down over the coming weeks:

1. The 5-year plan
2. The Budget
3. The Truth Serum
4. Keeping Score

Excited for this!

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The Planning Cycle

Since the inception of this newsletter, it seemed I would discover some hidden piece of knowledge through writing each week’s issue.

The beauty of writing is not that you record your thoughts, but that you uncover them.

Most of the things I’ve written about over the last few years have come from personal experience, but until I wrote them, I’m not sure I completely understood the principles behind them.

But something weird happened: the more I wrote, the more principles I uncovered.

And in that journey, something funny happened. It became clear that I had a very distinct way of doing things, which could be organized into distinct functions, which would work in almost any business.

So today, we reveal that master plan.

Over the last 4-5 months I’ve been planning something behind the scenes.

Every SMB I’ve been in, and those I’ve observed from the outside, all seem to have three distinct cycles:

1. The Planning Cycle
2. The Growth Cycle
3. The Operating Cycle

Each year, the best businesses put together a strategic plan. That strategic plan creates growth, but then there is a natural leveling off. During that leveling, you learn to operate at that new level, before stepping into the next planning cycle.

As these cycles repeat, there are also natural rhythms within the finance function that repeat. And they don’t just repeat one cycle, but repeat in all of them.

And as those cycles repeat, you start to develop rules within the Accounting & Finance functions, and operating methodologies around these cycles. These are what I’d call operating systems.

These operating systems help the business manage each of these cycles as an expert.

Over the coming months, I’m going to lay out the principles behind each of these operating systems and help you learn how to implement them in your business.

As we head down this path, you’ll be exposed to some new concepts and some old ones too.

I am not necessarily reinventing the wheel as much as organizing this in a way I’ve yet to see it organized.

Ultimately, the Accounting & Finance systems in SMB are broken into 5 operating systems:

1. PlanningOS
2. ReportingOS
3. CapitalOS
4. CashOS
5. RiskOS

Each of these are distinct and different from each other but also have overlap. There are elements of Planning, Capital, Cash, and Risk that are all incorporated into the ReportingOS.

Cash and Capital and necessarily linked, but during that series we’ll explain why they’re also distinct. RiskOS, or risk management, is also tied into to Capital and Cash, but unique in that each business and owner will have their own risk profile they’re ready to accept.

But today, we’re going to focus on the starting point… in some ways the foundation of it all: PlanningOS.

PLANNINGOS

As a business owner, most days are spent dealing with the problem right in front of you.

A perfect example of this is my friend, Smiley (no that’s not his real name). By all metrics, he was successful. His business was doing well and he seemed to be attacking new opportunity after new opportunity.

As opportunities came, he evaluated them one-by-one. Does this look good? How hard will it be? Can I afford the investment? He kept making good investments and things just seemed to work.

One day Smiley called me up and said that a competitor called him up looking to sell and he wanted help analyzing the deal. Before I sat down and looked at the financials, I asked: who is the ultimate customer you want to serve?

He outlined who that customer was and why he wanted them.

But the competitor had a slightly different customer base. I probed a bit, gave him some feedback, and we went along our way.

A few months later Smiley and the target popped into my mind. I gave him a call and asked him “what ever happened with them?”

I expected, per usual, that the deal never materialized. But to my surprise, Smiley had moved forward with the acquisition and he was smiling no more (I chose that name just for that line).

To make matters worse, another friend in the industry had called him and was looking to sell too. This company was the perfect acquisition target: same customers, same values, and right size.

There was one problem though: Smiley was so strapped trying to integrate the first acquisition that he couldn’t take the risk on the second.

Ultimately, the friend went elsewhere and sold his business to someone else in the industry. Smiley’s acquisition ultimately failed and they spent two years chasing the wrong things.

As we talked about it after the fact, Smiley was embarrassed: the friend had told him he wanted to sell, Smiley had just been distracted.

While we can’t make up an alternate reality and get that chance back, I walked Smiley through an annual planning process:

1. We created a 5-year vision and broke it down to an annual goal
2. We built a budget based on those goals
3. We requested feedback from the team to align the goals with what was possible
4. Once the goals were set, we determined how to measure them

During goal setting, Smiley had determined he wanted 2-3 acquisitions over the next 5 years. So, to make that become a reality, he outlined the ideal business profile, put together a list of business owners to reach out to, and created a questionnaire to assure the businesses were the right fit.

Over the next year, he sat down with many of the owners from the list and found 2-3 that aligned with his goal and could have an interest in selling.

While the final story is yet to be told, Smiley is on his way to acquiring the right business this time instead of the wrong one.

All because he had a clear vision.

Over the coming weeks, we’re going to break the PlanningOS isn’t 4 parts:

1. The 5-year plan
2. The Budget
3. The Truth Serum
4. Keeping Score

These 4 steps will lay the foundation needed to then create the appropriate reporting systems, which will lead us directly into the ReportingOS.

I’m excited to walk you through this.

We’ll have templates and questionnaires to help you follow along.

As we dive into PlanningOS, I’m sure you have some questions about the planning cycle, FP&A, or budgeting. Reach out and I’ll do my best to incorporate them into this series.

If we get enough questions, maybe we’ll even do a Q&A-specific issue.

Until next week, happy planning my folks,

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