Annual Operating Plan: How to Build One in 8 Easy Steps

Written by
Reviewed by Matt Pelkey
• 5 minute read
Business woman smiling at her laptop.

Creating an effective annual operating plan (AOP) is important for any business, whether it’s a bustling startup or a well-established small business. This strategic planning tool serves as a roadmap, guiding your company toward its business objectives and fiscal year goals. Learn more about annual operating plans and how to make one to get your year started on the right foot.

1. Conduct a Business Review

Kick off your planning process by reviewing the previous year. Examine your financial statements, business goals and key performance indicators (KPIs) to understand where your business stands. Reflect on both the successes and the shortcomings, considering metrics and actuals to gain a comprehensive view. This step is crucial to informed decision-making by both CFOs and business owners.

2. Check In With Stakeholders

Your stakeholders, including department heads, team members and investors, play a vital role in the planning process. Their feedback can provide valuable insights into the operational and strategic needs of your business. This collaborative approach ensures that your AOP is aligned with the company’s goals and addresses the needs and expectations of all parties involved.

3. Set Your Goals and Key Performance Indicators

Define clear, achievable business goals and establish key performance indicators (KPIs) for the upcoming year. These goals should be SMART (Specific, Measurable, Achievable, Relevant, Time-bound) and directly tied to your strategic vision. KPIs will serve as quantifiable metrics to track progress and gauge the success of your initiatives.

4. Identify Obstacles

Anticipate challenges that might hinder your progress. Whether it’s cash flow issues or the challenges of launching a new product, preparing for obstacles ensures a more resilient plan. Consider internal and external factors such as market trends, competition and resource limitations.

5. Plan a Strategy

Craft a strategy that includes the initiatives necessary to achieve your business goals. This should include a blend of financial planning, marketing strategies, human resources allocation and operational tactics. Ensure that your strategy is flexible yet focused, with clear milestones for monitoring progress.

6. Create a Realistic Budget

Your operating budget is a key component of your AOP. It should realistically reflect your anticipated revenue, expenses and cash flow. Utilize financial planning tools, such as Excel or specialized SaaS platforms, to create a detailed and accurate budget. This budget should align with your strategic goals and provide a clear financial roadmap for the year.

7. Assign Roles and Responsibilities

Clarify roles and responsibilities within your team. Ensure everyone understands their part in achieving milestones and business objectives. This clarity helps to keep your team focused and aligned with the AOP’s goals.

8. Check In and Adjust as Needed

An effective AOP is not set in stone. Regular check-ins allow you to compare actual performance against your plan and make necessary adjustments. This flexibility allows your business to adapt to changes and unexpected challenges, ensuring that your AOP remains relevant and effective throughout the year.

What Is an Annual Operating Plan?

An annual operating plan is a detailed outline of a company’s projected activities over the upcoming year. It includes budgets, projected revenue, goals and strategies.

Why Do You Need an Annual Operating Plan?

An AOP provides clarity and direction. It helps in aligning the efforts of different departments towards common business goals, thereby improving the bottom line.

Where Can I Find Tools to Help Create an Annual Operating Plan?

There are numerous tools available, from Excel templates to sophisticated SaaS platforms. Microsoft offers resources for step-by-step planning, while various online platforms provide AOP and SOP (standard operating procedure) templates. These tools can help streamline the planning process and ensure accuracy and consistency.

What Are Some Common Mistakes People Make When Creating an Annual Operating Plan?

Common mistakes include setting unrealistic goals, neglecting stakeholder input, inadequate risk assessment and failing to adjust the plan as needed. It’s important to be aware of these pitfalls so you can avoid them when creating your AOP.

What Experts Say

“There were several critical steps I needed to consider when I created my annual operating plan. I started by looking at what I felt I needed to achieve to run a successful travel blog/website. This included increasing website traffic, generating revenue and growing my email subscriber list. I needed a way to understand my target audience, their behaviors, interests and preferences. Then I outlined my services.

“I did comprehensive market research on my possible competitors and the current state of the travel industry, and planned how I would make money, whether it be through advertisements, sponsor content, or affiliate marketing. I then created a content schedule, a thought-out plan on when I would release what type of content, what topics I would cover and when it would be published.

“This is a simplified overview of how I created my annual operating plan for my new business venture. The actual process did involve more steps, for instance, marketing and promotion, my financial plan and what my KPIs will be to determine my progress. Remember to stay flexible when creating your operating plan since any industry has the possibility to change rapidly.”

Saya Nagori, CEO & Travel Expert

The Bottom Line

An annual operating plan is not just a financial document; it’s a strategic tool that guides your business through the fiscal year. Building an effective annual operating plan is a process that requires careful thought, collaboration and strategic planning. By following these steps and leveraging the right tools, you can create an effective AOP that aligns with your business needs and helps achieve your goals.

This content is for educational and informational purposes only, and is not intended as financial, investment or legal advice.

Article Contributors

Saya Nagori, CEO & Travel Expert

WanderDC is a travel hub curated by Saya, a resident of Washington DC since 2018. Since her adventures to DC as a teen, she’s loved the city and the surrounding areas. Now, she aims to give the best recommendations and insights to travelers looking to wander DC. She also shares her recommendations for the surrounding areas including Maryland and Virginia.