Long Term Financial Planning
KIM MASELLI, NORTHWESTERN UNIVERSITY PRESS
Long-term planning is perhaps the most essential tool available to a university press. As a fiscal document, a long-term plan establishes a firm basis for all business operations. When coupled with a realistic mission, or vision, for the press, it provides a framework for effective decision-making and efficient allocation of financial (and human) resources. A long-term plan should be thought of as a road map; it is a guide to an end, but is seldom carved in stone. Mutability does not, however, detract from a long-term plan's usefulness for unifying disparate goals in a world of uncertainty.
The Components of a Long-Term Plan
A long-term plan typically consists of a set of objectives, a time horizon, and inputs, which will include assumptions about the publishing program plan and the annual number of new titles, and expectations about the sales contributions of the frontlist and backlist. Long-term plans are most often drafted in three- or five-year increments; the length of the horizon may be dictated either by the degree of uncertainty faced by a press or by the objectives of a press. Typically, the uncertainty facing an organization will be a function of the organization's size; the smaller the press, the greater the uncertainty regarding its publishing plan and the greater the potential impact of the economic climate and industry variables on the press. Given uncertainty levels, small presses typically will compose long-term plans with shorter horizons.
For a small press, small variations in the economy and the industry, as well as internal variability, introduce a great deal of uncertainty into the planning process. Yet many small presses have objectives that are very rigid and easily quantified. To reconcile this combination of uncertain environment and rigid goals, many small presses turn to the three-year horizon to implement a long-term plan. The following are important aspects of the planning process.
1. Objectives. Perhaps the most important issue for many presses is formulating a set of objectives. Objectives may be dictated by parent institution administration or may be fashioned by press administration. Objectives may include (but are certainly not limited to) attaining self-sufficiency within a certain time frame, achieving a certain growth rate per year, or planning for future investment. Underlying all of these objectives is, of course, the goal of running an efficient operation.
2. Horizon. For many small presses, the effect of internal and external forces on their operation can have sweeping ramifications on their growth path and operations. This, coupled with the often rigid set of goals faced by smaller organizations, will dictate that small presses adopt a three-year horizon in planning. In a three-year plan, Year One (i.e., next year) can be planned with some degree of certainty, based on current performance. Reasonable assumptions can be made about Year Two. Year Three, for many small presses, is fairly far in the future, as relatively small changes can have far- reaching impact on a small organization; still, reasonable assumptions can be made about the environment a press will be facing and can provide a solid basis for the long-term plan.
3. Inputs. Presses have been known to put together long-term plans by taking the current year's performance and allowing for a 10 percent increase for each item. Those who inspect this technique critically will see its futility. For the long-term plan—the output—to be useful, the inputs must be rigorously examined and developed. It is of paramount importance that the issues being faced are understood, and it is equally important to be realistic about the inputs developed. The AAUP annual financial statistics, as averages, cannot be applied wholesale to a given press's organization, but they can serve as a useful tool for checking orders of magnitude.
4. Expenses. Many planners find it easiest to begin on the expense side. Many expense inputs are known and/or can be projected easily. For example, staffing levels are known, and assumptions can be made about hiring in the future. Marketing expenditures (e.g., catalog production and frequency, direct mail, advertising) can be planned, as can fixed editorial and production costs. In the area of overhead, many large fixed costs are contracted or can be forecasted with a high degree of accuracy (e.g., equipment contracts and maintenance, rent). Variable costs (e.g., royalties, cost of books sold) will to some degree fall out of revenue projections, but general levels should be known and can be forecasted at this point.
Note also that many, if not most, parent institutions prepare their own long-term plans. The parent institution will develop inputs such as inflation forecasts, benefits rates, assumptions about salary increases, etc. Often these inputs are circulated on a university-wide basis; if they are not, the information can usually be obtained through the university's budget office.
5. Revenue. Revenue levels are subject to external pressures and are thus much more difficult to forecast. The planner must work carefully through inputs with detailed projections: What can be published given the current and projected staff levels? What levels of sales are reasonable given planned expenditure on sales force and other marketing expenditures? What level of revenue and gross margin from sales is needed to meet the press's obligations, given the expenses that have been forecast?
If obligations cannot be met by the revenue forecast, it may become necessary to revisit the publishing plan and to examine the product mix, profitability, and positioning in order to achieve a publishing mix that meets revenue needs. It must be recognized that this process is iterative and circular; sales depend on all of the expenses that have been forecast, and revenue shortfalls cannot be recouped simply by cutting expenditures, as cuts in expenditures (e.g. promotion and selling) may have an adverse impact on sales.
6. Monitoring and Control. Ultimate responsibility for monitoring progress against a three-year plan typically lies within the business office. It is wise to have both fiscal input and responsibility lie within the functional groups, as this will force area managers to monitor and think critically about the expenditures within their functional area.
Progress should be measured not only against the current year's plan, but against the long-term plan as well. Deviations from budget may occur on a short-term basis; any significant deviation must be assessed for its impact on current performance and its potential impact on long-term performance as well. When that impact is deemed to be large, it is necessary to reforecast, using the new information as a basis. As was discussed in the introductory remarks, long-term plans are not carved in stone; nor are they met with any degree of regularity. It is their very existence, and the constant assessment and reassessment of actual performance against projected performance, that allow for effective, stable growth and efficient operation of an organization.
7. Looking Forward: Rolling Plans and Budgeting. The completion of a long-term plan has as its bonus that next year's budget is also completed. As the organization approaches the end of Year One, the plan is "rolled forward," with Year Two becoming the next year's budget, and so forth. Continual updating and incorporation of current performance and information allows the planner to refine the current year's plan into a budget and to establish the plan for subsequent years.
Long-term planning is a mutable, iterative process. It must be perceived as such, and it must be understood that a plan's importance lies not in its ability to predict with perfect foresight the future, but rather in establishing a secure and logical position from which to confront that future.