Profit Planning

Profit planning is the development of Business Planning and serves as your sales and profit objective and your budget for cost.

Profit Planning is used in various ways:

• Evaluating operations
  Each time you prepare an income statement, actual sales and costs are compared with those you projected in your original profit plan. This permits detection of areas of unsatisfactory performance so that corrective action can be taken.
• Determining the need for additional resources such as facilities or personnel
  For example, the profit plan may show that a sharp increase in expected sales will overload the company's billing personnel. A decision can then be made to add additional invoicing personnel, to retain an EDP service, or to pursue some other alternative.
• Planning purchasing requirements
  The volume of expected sales may be more than the business' usual suppliers can handle or expected sales may be sufficient to permit taking advantage of quantity discounts. In either case, advance knowledge of purchasing requirements will permit taking advantage of cost savings and ensure that purchased goods are readily available when needed.
• Anticipating any additional financing needs
  With planning, the search for needed funds can begin as early as possible. In this way, financial crises are avoided and financing can be arranged on more favourable terms.

Advantages of Profit Planning

WKH Business Solutions can undertake to review and/or develop an Annual Profit Plan, define Annual Revenue Potential & Targets, prepare "Break-Even" Cost Analysis and establish a Competitive Billing Rate Structure. The modest investment in time required to develop and implement such strategies will pay liberal dividends later and offer these and many more benefits:

• Performance evaluation
  The profit plan can provide a continuing standard against which sales performance and cost control can quickly be evaluated
• Awareness of responsibilities
  With the profit plan, personnel are readily aware of their responsibilities for meeting sales objectives, controlling costs, and the like
• Cost consciousness
  Since cost excesses can quickly be identified and planned, expenditures can be compared with budgets even before they are incurred, cost consciousness is increased, reducing unnecessary costs and overspending
• Disciplined approach to problem-solving
  The profit plan permits early detection of potential problems so that their nature and extent are known. With this information, alternate corrective actions can be more easily and accurately evaluated
• Thinking about the future
  Too often, small businesses neglect to plan ahead: thinking about where they are today, where they will be next year, or the year after. As a result, opportunities are overlooked and crises occur that could have been avoided. Development of the profit plan requires thinking about the future so that many problems can be avoided before they arise
• Confidence of lenders and investors
  A realistic profit plan, supported by a description of specific steps proposed to achieve sales and profit objectives, will inspire the confidence of potential lenders and investors. This confidence will not only influence their judgment of you as a business manager, but also the prospects of your business' success and its worthiness for a loan or an investment