Profit planning
is an important process for small business owners. Learn what is a profit
planning, why this is important, and how to use it in your small business. All
business owners enter the business that intends to get profit. But the profit
does not just happen. It also needs to be planned correctly. In this article,
we will explain what profit planning is, what are the benefits of profit
planning, and some suggestions for getting maximum results from your plan.
Overview: What
is Profit Planning?
Whether your business
is run from your dining room table, small office, or large factory, you must
use profit planning. Profit plans not only look at how your business will get a
profit today but also creates plans for future profits.
Profit planning
does not have to be complicated, but it needs to be included in writing and
done. Profit planning helps you set business goals while creating plans to
achieve these goals. The profit plan for a small business at first will be very
simple but will grow in complexity when the business grows.
Profit plans
are always made as part of a larger plan, such as the master budget or
strategic plan, and must include the following information:
* Market target
* Product or
service price
* Staff
* Marketing and
advertising
* Collection process
* Business
Investment
* Operating
costs
Profit planning
usually requires four steps. Image source: Author
Why profit
planning is important for your business
What is your
goal for your business? Do you want to violate even your first year and continue
to grow from year to year, or do you prefer to start strong and maintain your
benefits in the coming years? Profit planning answers the questions and more
questions, allows you to plan carefully not only how many benefits you want to
produce, but the steps needed to achieve that goal.
As an integral
part of the planning process, profit planning must always be part of the
business plan or estimate that you make for your business and not only the
amount remaining after the cost is reduced from income. By planning a
deliberate profit, not by default, you are more likely to build a profit level
every year.
For example,
you produce and sell coffee mugs for $ 10. For your first year in business,
your goal is to get a profit of $ 2 for every coffee cup that you sell. By
planning a profit in advance, you now know that only $ 8 per cup sold is
available for all other costs involved in selling your coffee cups. And because
you know that, you can plan your expenses accordingly, including materials,
labor, sales costs, and even business emergency funds.
Profits are the
most important part of your business. It must always take precedence. These are
just a few reasons why.
This helps
business owners achieve their goals
If you don't
plan profit, how do you know if you have reached your goal? In your head, you
might think, "I want to get $ 50,000 per year," but in reality, you
don't know how you will make it happen. Before you can get a profit of $
50,000, you must make a method to achieve that goal. That's what profit planning
is done.
Help with
future decisions
Profit planning
can be used to achieve short -term and long -term goals. For example, you start
a business in January 2021, with a simple goal of producing $ 40,000 in your
first year's profit in business. However, when your brand becomes better known
and your sales technique increases, you expect your profit in 2022 to double to
$ 80,000.
Although this
is a goal that can be achieved, profit planning gives the details you need to
give you the best opportunity to achieve it by considering details such as increasing
material costs and labor costs.
Give a basic
line to measure
It is important
to set a base line to measure success. In our previous example, we talked about
business owners who wanted to get $ 50,000 a year but had no plans. Do you
think that business owners will feel successful if they get their first $
25,000?
Probably not.
Establish a base line, and continue to measure the base line because your
business grows will allow you to make adjustments along the way, give your
business a better opportunity for success.
Benefits of
Profit Planning
Just wanting to
get a profit is not a goal that can be achieved. Profit planning gives you a
way to set and achieve your goals. There are many benefits for profit planning.
Here are only a few.
This allows you
to set targets and create road maps to that target
The most
important thing about profit planning is to allow you to create target profits
and then build detailed plans around it. For example, if your target profit for
this year is $ 100,000, you can then develop a strategy to achieve that goal by
answering the following questions:
1. How many
items/units/services will I sell to achieve my goal?
2. Do I plan to
reinstate profits?
3. How much
does it cost to me?
4. How much
should I wear for my products and services?
5. How many
sales personnel do I need to achieve my goal?
6. Is there a
place where I need to reduce costs?
7. Where do I
want my gross profit margin to be?
After these
questions are answered, you are on a trip to create a healthy business budget
to follow your profit plan.
Profit planning
must always be part of any budget you make. Image source: Author
This
strengthens the overall business
Profit plans
are designed to be used with other financial projections such as business
plans, financial estimates, or organizational budgets. When you make a detailed
profit plan, you can compare the progress of each accounting period to see how
close or how far you are from your initial target profit, and more importantly,
taking corrective action to return to its track.
This gives the
owner, manager, and employee with a clear purpose
It is fair that
all main employees are on the same page about the strategic goals of your
business. It is difficult to ask employees who are responsible for underselling
if they do not have ideas or input into your profit planning process. Bring
your employees into the process of giving them the main shares in the results
and also gives them a much clearer picture of hope.
Profit planning
loss
Apart from the
time spent, uniting your profit plan, there is no loss for profit planning.
Even if your initial planning is far from the actual results, you can adjust
your plans going forward to more suit your business.
4 Best
Practices for Profit Planning
If you are a
new business owner, chances are you have made a business plan that is not
perfect and does not pay much attention to profit; That's what is left after
your expenses are reduced from your income. But detailed profit planning is
important, even for smaller businesses. So let's start planning today, using
some of these best practices.
1. Make a
profit plan as part of a business plan
Profit plan
must always be part of a business plan or strategic plan. Profit planning is
not possible without using a complete budget approach for profit planning,
which includes budgeting costs and estimating the level of production.
2. Use cash
flow predictions to map goals
After the
profit planning and expenditure budgeting is complete, make an estimated cash
flow that provides details of your plan. This not only gives a key guide to
use, but can also help you see where your projections die, allowing you to make
changes when needed.
3. Plan the
profit in advance
Always
determine the level of profit you want to achieve and then plan your expenses
around it, instead of the opposite. Although this sounds simple, in fact, many
business owners estimate income and expenses, with any operational benefits
left. By determining the benefits you want to produce and by planning it
correctly, you are far more likely to achieve your goals.
4. Hold (and
others) responsible
Having a
strategic plan that includes detailed plans for advantages to help you, your
manager, and your employees are responsible. It is impossible to achieve goals
without knowing what goals you want to achieve. Be as detailed as you can, and
rely on your team to make it happen.
Profit planning
is important for all businesses
Even the
smallest business will benefit from profit planning. By setting financial goals
and placing it in action, you are far more likely to achieve the business
profit that you have planned.
Profit planning
must always be part of the master budget that you created for your business.
Taking time to plan profits correctly will produce a clear road map for you to
follow on the path to develop your business - and your benefits.
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