What is an annual plan?

An annual business plan is a roadmap for a company and its employees. It contains milestones that carry the plan forward through a series of smaller goals that lead to a broader vision of where the business aims to be by the end of the year.

Companies use annual business plans to adjust resources, improve performance, and reach specific goals over the coming year. Essentially, you can think of annual planning as a strategic guide for the upcoming year. It’s about shifting from a long-term vision into an actionable, short-term plan.

Whether using an annual business plan template or working from scratch, a company will review performance from the previous year to create an annual plan that gives everyone in the organization a sense of where they’re headed and how they will get there.

In this guide:

• Why annual planning is crucial for businesses.
• Creating an annual plan: A step-by-step guide.
• Key components of an effective annual plan.
• Getting started with annual planning.

An annual business plan is a yearly plan that empowers workers to set specific business goals based on the company’s overarching strategy. It also holds teams accountable for achieving stated goals — which in turn promotes progress tracking. The annual plan connects directly to where a company wants to be in three to five years and defines what’s critical to achieve over the next year to progress toward longer-term targets.

A well-formulated annual plan also keeps internal teams working together, incentivizing them to be more productive. Additional benefits of an annual business plan include:

• Providing a stronger connection to the strategic plan.
• Putting the mission of the organization into daily practice.
• Providing workers with a clear sense of direction in their departments or roles.

Aligning teams and departments towards a common goal boosts communication and camaraderie — but just as importantly it sets short-term expectations. Short-term expectations can give teams direction without being lost in the shuffle of five-year plans.

Another benefit of annual planning is that it gives you the ability to remain adaptable. With ongoing planning, you can adapt to unforeseen events, reevaluate, and tackle any changing circumstances — all without losing sight of your longer-term goals.

With benefits to team direction, market adaptation, tackling unforeseen challenges and boosting strategic execution, writing an annual plan is a must for businesses of all sizes.

There are steps that teams should take before creating an annual plan that can help ensure its efficacy. Teams should look at historical data to get a baseline for setting goals in an annual plan. Reviewing previous annual plans and assessing the results can give your team guidance to create an upcoming annual plan.

Before creating an annual plan.

• Step 1: Analyze past performance. Before you think about creating an annual plan, you need to analyze past performance to set realistic goals, adapt to any shifts in the market, and affirm your direction. Don’t just consider areas of improvement either — consider your accomplishments, and how everything ties back into your business objectives. Try to use data to inform your decisions, as what you decide here will trickle down.
• Step 2: Identify your goals. Once you’ve analyzed your past performance, it’s time to use that data to identify your goals. As you define your goals, stop to consider if they’re realistically achievable within the set timeframe. With past data to rely on from analyzing your past performance, you should be able to better understand what is required to achieve your goals compared to last year.
• Step 3: Determine your budget. To accurately create an annual plan, you want to determine your budget. Don’t worry about distributing it yet — simply knowing what you’re able to work with will let you define which objectives you can pursue.
• Step 4: State your core values. These are the principles, beliefs, and philosophies that shape your company’s culture and support your vision for the future. You want to ensure that your goals align with your core values. Annual plans are exceptional, but if you’re always responding to things, you could drift from your original long-term plan or values. Try to look back at your core mission statement or vision statements when deciding on your annual plan.
• Step 5: Consider key problems and issues. By understanding what went wrong the previous year and the issues you faced, you can offer remedies in your annual plan to improve future outcomes.

Creating an annual plan.

• Step 1: Define goals and objectives. To create an annual plan, you need goals. When you define those goals, you can break them down into objectives that can be actioned. This turns your plan from an idea into something tangible and achievable. Try to use goal-setting frameworks such as SMART goals or stretch goals.
• Step 2: Develop strategies and initiatives. Develop ways to achieve your goals. Say you want more footfall in your store; how do you go about this specifically? You want strategies, initiatives, and actionable steps that get you closer to your goal.
• Step 3: Allocate resources and assign responsibilities. Next, you want to distribute your budget, assign roles, and ensure there is accountability for these steps. Ideally, responsibility should rest with people directly responsible for certain goals. If you skipped looking into your budget, this step will become a lot harder, and you may not get the results you want.
• Step 4: Implement and communicate the plan. Once you’re happy with your goals, objectives, initiatives, and allocation of resources and responsibilities, it’s time to get everyone onboard. Use clear communication channels and roll your plan out across the business. You want to get people onboard here and develop some momentum, so don’t rely on the odd email. Get teams together, clearly define and communicate your goals, and ensure people know where responsibility rests.
• Step 5: Monitor, evaluate, and adjust. Once your annual plan has been rolled out, you can’t just leave it to work. You need to check progress, review KPIs, and be ready to adapt the plan — it’s rare it all goes exactly as intended.

There are many annual business plan templates you can use to make your plan. Generally, the key components of an effective annual plan consist of these elements:

• Performance review: To compose an effective annual plan, you need to make decisions and set goals backed by analysis. Looking back at the previous year’s successes and failures — with the data and reports to back them up — can give you an accurate sense of what you need to change that isn’t clouded by bias or a gut feeling.
• Goal frameworks: Composing your annual plan is one thing, achieving it is another. Goal setting frameworks help to steer you, ensuring you meet your proposed plan. Additionally, goal setting frameworks help you break down goals into manageable objectives, which in turn helps with direction and accountability.

• SMART goals: SMART goals are a goal setting framework that focuses on assigning specific, measurable, achievable, relevant, and time-bound objectives.
• Stretch goals: Stretch goals are intentionally ambitious goals designed to challenge your team. They can promote innovation, communication, and creative thinking. However, if done wrong they could be demotivating. Stretch goals can be a good addition to other goal setting frameworks.
• OKR: OKR stands for objectives and key results. The OKR goal-setting framework focuses on setting a goal (your objective), defining the results that lead to that objective (key results), then tracking progress. This means clear, measurable results that tie into the greater whole.
• KPI: KPI is an abbreviation of key performance indicator(s). They are a form of performance measurement — a way to evaluate areas such as revenue, profit margins, customer satisfaction and client retention — to name a few.
• Strategic action plan: Think of the strategic action plan as an informational roadmap with a set of specific actions needed to achieve your annual plan. It’s not the idea; it’s “How do we get there?”
• Resource management: Resource management is all about planning the budgets, personnel, and tool requirements to hit your goal. As such, you need a goal in mind and a decent grasp of how you intend to achieve it.
• Milestones and checkpoints: To reach where you want your business to be in a year, take your larger goals and split them up into smaller goals set on specific timelines. As you set your deadlines, include metrics that will indicate how successful you’ve been in achieving your goals.
• Contingency and buffer plans: What happens if your company’s cash flow gets into trouble? It’s a good idea to set up emergency financial reservoirs before they’re necessary. Maintaining a cash reserve or keeping room in a line of credit are both good contingency measures. Remember to compare your actual financial results to your projections throughout the year, so you can spot financial problems before they spiral out of control.

Creating an annual plan is easier when you use the right tools. These can include an annual business plan template that organizes planning efforts and a wide variety of software solutions for writing business and strategy plans as well as tracking goals.

Annual plan vs. strategic plan.

In the strategic planning process, an organization describes or affirms its mission, formulates a vision of what it wants to achieve over the next few years, and sets strategic priorities to help make that vision a reality.

The strategic plan works hand in hand with the annual business plan. The strategic plan provides an overarching vision of what the company wants to achieve, and the annual plan provides the nuts and bolts of the necessary work to be done over the coming year.

So, the annual business plan depends on the strategy for its priorities, and the strategy depends on the annual plan to execute its ideas about the organization’s vision, mission, purpose, and goals. Logistics, projects, resource allocation, and timing are covered in the annual plan.

Creating an annual plan is easier when you use the right tools. These can include an annual business plan template that organizes planning efforts and a wide variety of software solutions for writing business and strategy plans.

As you execute your annual plan, it’s also a good idea to rely on a work management platform with strategic planning tools that allow you to collaborate productively, create content, allocate resources, track milestones, and manage complex processes. Using features like Workfront’s scenario planner, you can simplify the annual planning process, adapt to market shifts with continuous planning, compare scenarios for risk and effectiveness, and stay ahead of the competition. Workfront Goals enables you to share, enact, and monitor goal-setting frameworks and results.

Armed with the right tools, plans, and processes, you can create a well-conceived and executed annual business plan that ensures the year ahead lives up to your expectations.