How To Create an Annual Operating Plan for Your SaaS Business
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Business planning can be a painful process for all involved. But getting rid of it isn’t an option. A rigorous annual operating plan is what will help you maximize efficiency across the business and allocate resources to hit company goals.
Don’t spend year after year dreading each step of the process of building your business plans. Here, we’ll cover the key concepts and steps you need to know to optimize your processes and create an annual operating plan that drives value for your organization.
Table of Contents
What Is an Annual Operating Plan?
An annual operating plan (AOP) is a strategic document that a company prepares to chart its course for the upcoming year. This AOP encompasses key performance indicators (KPIs), operating budgets, and action plans designed to meet both short-term and long-term objectives. Through the annual operating plan, businesses can pinpoint and allocate their resources efficiently, ensuring they’re on track to achieve their set milestones.
Benefits of Annual Operating Plans
As a part of strategic planning, an annual operating plan ensures that all employees understand their responsibilities and can coordinate their efforts to complete your business objectives.
It enables managers to track progress and determine whether they’ll hit company milestones on time. As a result, managers can request any needed funding from the CFO ahead of time.
Here are more benefits of annual operating plans:
Make Department Plans and Strategies More Data-Driven
A data-driven approach keeps the plans and strategies of various departments more outcome-oriented by drilling down to the impact of costs per head, per month, or per vendor.
Such an approach improves the accuracy and flexibility of your SaaS revenue forecasting by aligning revenue and expense forecasts with the primary levers for your SaaS business.
Align Cross-Functional Departments With Business Goals
Align Cross-Functional Departments With Business Goals
Business leaders can curate job roles and department goals based on what’s outlined in the annual operating plan to ensure their team members align with key company objectives.
Help Highlight Potential Need for Fundraising or Spending Re-Evaluation
An annual operating plan can help you have more granular conversations with stakeholders or business owners about how changes in spending could improve performance as market and business conditions shift throughout the year.
Give Departments a Guidepost for Tracking Performance and Goals
An excellent AOP will help various departments track their progress and ensure they take the necessary initiatives to achieve company objectives throughout the fiscal year.
How To Create an Annual Operating Plan
The complexity and maturity of your company will determine the details of your annual planning process. But in general, aim to start the planning process about a third of the way through your Q4 and finish it within six weeks. This ensures decision-making is streamlined and goals are achievable.
Here are the recommended steps:
1. Organize Department-Level Data in the Main Financial Model
Creating an annual operating plan starts with categorizing data from your company to understand the previous year’s performance trends. These insights are the foundation for the rest of your planning process and will help you create a detailed plan.
Your goal in this phase is to clearly understand what teams are spending money on and find consistent and inconsistent spending across general ledger accounts.
You can also find significant one-time expenses across departments and look for opportunities to limit these expenses to improve cash flow.
You can then use these insights to develop questions for departmental meetings.
2. Get a Read on Department-Level Plans
This is the most collaborative — and perhaps most important — part of the annual planning process. The ability to connect with department leaders, understand their needs, and contribute to their plans will enhance the effectiveness of your AOP.
The needs of the marketing, human resources, sales, and product departments differ from those of the finance department. So, communicate with their leaders to learn what they care about most rather than handing over dense spreadsheets outlining the financial plan.
Focus your conversations on past performance compared to your plans. Alternatively, you can create high-level strategic budgets and establish goals to achieve them if you don’t have historical data.
3. Translate Department Budgets to the Main Model and Scenarios
In the previous step, you worked with department leaders to understand their needs and strategies. As a result, you should have worked through various department-level scenarios by this point.
One scenario could be: What if we hire another 30 people in the production department? Is the ROI of new product releases worth the cash impact?
Another scenario you could consider: What if we doubled our marketing acquisition budget? What effect would this have on pipeline generation?
When you translate the department-level discussions to the primary model, you must also run what-if scenarios for the whole organization.
Having a CEO and a CFO with a good relationship can make all the difference when creating an AOP, and running these scenarios will let CFOs have a more strategic conversation with the CEO about how to handle different aspects of the current economic environment.
The models will show how different fundraising scenarios, revenue forecasting, and headcount plans affect your cash flow, runway, and burn rate.
4. Align With the CEO for Company and Board Approval
At this stage, you’ll present fully fleshed-out scenarios and plans from the third step to finalize things for the CEO and board.
However, due to market uncertainty, you may spend more time with your CEO working out scenarios and model assumptions to determine the best path forward.
As a result, you may want to give yourself plenty of time to adjust your plans based on your CEO’s recommendations and comments.
Then, the CEO can sign off on the plans and approve the various scenarios you’ll present to the board.
5. Reforecast Throughout the Year To Keep the Plan Fresh
The value of an annual operating plan is in the process itself. You must keep it fresh monthly and quarterly. So, update your models to reflect new context about the business and macroeconomic environment.
Also, compare rolling forecasts to the original annual plan. This comparison lets you revisit the plan with the most recent actuals and adjust based on business performance and macroeconomic conditions.
Why SaaS Startups Need To Go Beyond Annual Operating Plans
As you create your AOP for 2023, market uncertainty is forcing you to be more adaptable and agile. So, prioritize automation and data integration to address evolving business needs. You’ll need an overarching framework for centralizing, processing, and analyzing financial statements and other financial data.
You need a framework to pull all financial data from your organization and map it into a common ontology, saving 80% of the time you typically spend cleaning data from individual record systems.
Financial tools like Mosaic provide this framework, eliminating the need to rely on engineers to develop a data architecture to support your agile planning.
How Mosaic Enables Business Growth
Mosaic provides a Strategic Finance Platform that serves as the connective tissue for your small business. It automates financial data integration and empowers you to add more strategic value to the planning process.
Plus, the 125+ SaaS metrics make monitoring your business’s growth simple.
Want to learn more about how Mosaic makes the typical high-stress top-line planning process easier for SaaS startups? Reach out for a personalized demo and find out how you can easily create your annual operations plan.
Annual Operating Plan FAQs
What should be included in an annual operating plan?
An annual operating plan should be a concise overview of the entire company’s strategic and tactical plans for the year ahead. This should include:
- A narrative of strategic context to go along with the proposed annual budget
- An explanation of the current and planning organizational structure to support strategic initiatives
- A clear outline of quantitative company goals and OKRs
- The breakdown of departmental metrics that you’ll use to track progress