Profit Planning: Essential for the New Year
When we think of planning for the New Year, we often think of preparing a budget. I advise my clients to create instead a profit plan. More than a budget, it reflects and reinforces your company’s strategic mindset to help you make solid decisions even in an uncertain climate. An effective profit plan includes both an operating budget and forecasted cash flow, and defines the business objectives you want to achieve and how you’ll get there. It supports financial goals, creates visibility, and provides clarity and accountability.
Companies that have a profit plan in place and adhere to it typically experience growth. The owners of those businesses express confidence that is instilled by the level of control they feel a profit plan provides over the direction of their business.
Here are some specific ways you can expect to benefit from a profit plan:
Support of Financial Goals
- Helps business owners achieve their identified financial goals by charting a course forward that is based on data and history, not guesstimates.
- Enables long-term planning with the flexibility to make short-term changes.
- Dovetails with strategic planning to identify and articulate the actions needed to reach profitability objectives.
- Creates a baseline against which to measure progress.
- Builds in accountability.
Increased Visibility
- Illuminates the need to address issues and adjust – especially of value during uncertain times.
- Provides a level of detail that the business may not ordinarily see.
- Informs and becomes a detailed extension of your business plan.
- Using quarterly, rolling forecasts, provides the data you need to make difficult business decisions related to:
- Inventory control
- Staffing adjustments
- Tightening credit with customers
Greater Clarity and Focus
- Clearly illustrates whether there is a positive return on business expenses.
- Reveals expenses that may no longer be necessary for the success of the business.
- Instills confidence in business decisions, actions, and the path forward, particularly during uncertain times when planning may seem challenging.
- Acts as a tool to help companies make tough decisions along the way and adjust for unforeseen events.
- Helps leaders and teams understand company objectives, more clearly define how their roles impact profitability, and create engagement and buy-in.
It’s not too late to create your company’s profit plan. I’d welcome the opportunity to help you develop this tool that is essential for growth. Contact me for a complimentary consultation. Your efforts will pay off!
