How do LATCo business plans measure up?

In Part 1 I set out what LATCo business plans have in common. In this article I compare the 26 plans I could read in full or in summary against what I’d consider best practice. It’s the checklist I use myself, set out in the business planning chapter of my book Commercialisation in Local Government (available soon), and it covers three things: the structure of the plan, the analysis behind it, and how it turns strategy into measures.

A caveat first. I’m judging what’s in the published document. Some companies will have done analysis that sits in board papers or an exempt appendix. But if the shareholder, the board and the public can’t see it, it can’t do much to build shared understanding, and that is a large part of what a business plan is for.

Structure: good on the words, weak on the numbers

A business plan should cover purpose and vision, background, strategic direction, a financial forecast and budget, and KPIs. On the first three, the sector does well. Every plan had a statement of purpose and strategic priorities, and most did them well.

Background is weaker. Only eight plans gave a full, honest account of the company’s journey so far, although the ones that did were very good.

The real gaps are in the last two. Forty per cent of plans had no financial forecast, and only six did it well. The budget should be one of the pillars of the plan, prepared alongside it. In too many cases it sits somewhere else entirely, in a separate annual plan or an exempt appendix, and the published plan is a strategy with no visible means of paying for it.

The five priorities rarely join up

I recommend that every LATCo builds its plan around five connected priorities: delivering the core purpose, commercialisation, culture and wellbeing, innovation, and social value. Making them depend on each other is what makes the plan an integrated one that aligns the incentives of the board, the shareholder and council officers, and gives it the best chance of being approved first time.

Most plans touch on most of these. Commercialisation and service delivery appear in nearly every plan. Culture and wellbeing is the one most often missing, which is striking given that recruitment and retention is the second biggest theme in the sector, and that in service-based LATCos staff are usually the biggest cost. But only two of the 26 plans genuinely connect all five, so that each priority supports the others. Most read as a list of separate workstreams.

The analytical toolkit is almost entirely missing

This was the biggest gap. A plan is only as good as the analysis behind it, and I’d expect a proportionate plan to show, at the very least, a prioritised look at the external environment, an assessment of the markets the company competes in, a SWOT carried through to options, a view of growth with the Teckal headroom shown, and some testing of the financial model. Here’s what I found across the 26 plans:

• An environment scan of some kind appears in almost every plan, but in all but one it’s a description of pressures rather than a prioritised analysis that drives the plan.
• None of the 26 plans had a proper analysis of its markets, of the kind Porter’s Five Forces would give.
• Only three plans included a SWOT. None properly carried it through into a TOWS matrix to generate options, which is the step that turns description into strategy.
• None had a structured view of growth options, such as an Ansoff matrix.
• Only two had sensitivity analysis done well, and only one had genuine scenario planning. None had a proper reverse stress test or a break-even analysis for new ventures.

For companies carrying significant debt, and debt and interest rates were the most common theme in Part 1, that last point matters. A housing company with a council loan facility should be showing its shareholder what happens to cash and borrowing if sales slow, build costs rise and interest rates go up at the same time.

Teckal headroom is mentioned, but never measured

This one is specific to LATCos. A Teckal company must carry out more than 80% of its activities for its council. Any plan that includes external growth should therefore show projected external turnover as a percentage of total activity, say when the headroom runs out, and say what the company will do about it.

Six plans touched on Teckal status or external trading, but only two stated the 80% limit, and none of the 25 that I could assess showed the calculation. One plan reports around a quarter of its income coming from outside the council, but doesn’t say how that sits with the Teckal test. Where a company relies on a direct award from its council, that’s worth showing, and it’s easy to fix.

Risk: registers yes, appetite no

Fourteen plans included a risk register in some form, although only four scored the risks properly with owners and residual ratings. None set out a full risk appetite statement. Five referred to risk appetite; one introduced its statement and then didn’t give it.

That matters because commercialisation means taking risk. Some bids will be lost and some ventures won’t work. Part of what turns an acceptable commercial risk into a Robin Hood Energy or a Brick by Brick is taking it without agreeing in advance how much loss is acceptable and when to stop. The business plan is the place to agree that with the shareholder.

Pricing the council contract

Many LATCos still deliver their core contract at cost, rolled forward with an inflation uplift ever since the service left the council. Several of the plans and reports I read describe exactly that: a management fee that “does not allow for unexpected costs”, a budget that shows a nil surplus on the council contract, council work done “at cost”. As I’ve written before, a LATCo is a connected party and is required to price its transactions with the council at arm’s length. That gives it a legitimate, evidence-based reason to reopen the conversation.

Only three published plans dealt with this well. One care company agrees a “small and transparent margin” of 3% on its council contracts, with a clear policy for returning anything above it. That’s the kind of arrangement that should be in every plan.

Measures and social value

Of the plans that included KPIs, several were either too few to be meaningful or too many to manage. The largest set had around 70 measures. My test is simple: if you can’t link a KPI back to the business plan, then either the plan is wrong or it isn’t a key measure. Only four plans passed it clearly.

Social value is a strength of the sector in what companies do, and almost every plan talks about it. Only three measured it properly, using recognised frameworks such as the National TOMs. And none of the plans I read dealt with additionality, the difference the company has made compared with what would have happened anyway. Big headline figures are easy to produce and just as easy to challenge.

How the 26 published plans measured up

Number of plans. Based on what is in the published document; analysis held in exempt papers is not counted.

The overall picture

If I score the published plans against the checklist, the sector is strongest on vision, priorities and readability, and weakest on the analysis and measures that turn a vision into something a board can manage and a shareholder can hold to account. That’s not a criticism of the people writing these plans. Most LATCos are lean, and business planning is often done by a small finance or change team alongside everything else. But it does mean there’s a lot of value to be gained from relatively simple improvements.

In Part 3 I’ll look at the companies doing each of these things well, and set out a practical checklist any LATCo can use for its next plan.

Ian Skates is the founder of the Nullam Method, a diagnostic framework for Local Authority Trading Companies, and Nullam Financial.