Profit Planning
Profit Planning
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What is it?
Why is it important?
Financial changes occur constantly
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Trace in your company
Benchmark others
Importance of Accounting
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Accounting Records
Balance Sheet
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Financial structure
Assets
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Current Assets
Cash
 Accounts Receivable
 Inventory
 Short-term investments and Prepaid expenses
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Fixed Assets
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Buildings, machines, trucks
Financial Structure
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Liabilities
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Current Liabilities
Accounts Payable
 Notes Payable
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Long-term Liabilities
Bonds and mortgages
 Working capital
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Owners’ Equity
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Retained Earnings
Income Statement
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Revenues
Expenses
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Fixed
Variable
Profit
What makes a Successful Small
Business?
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Dun & Bradstreet
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More liquidity
Value balance sheet as much as income
statement
Stability over rapid growth
Long-term planning
Profit Planning Process
1.
Establish the Profit Goal
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2.
How much to do want to make?
What rate of return do investors want?
Determine the Planned Sales Volume
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Sales forecast
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3.
Factors
Estimate Expenses the Planned Sales
Volume
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Variable v. fixed costs
Profit Planning Process
4.
Determine the Estimated Profit
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5.
Compare Estimated Profit with Profit
Goal
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6.
Sales income + Other income - Expenses
Did it meet goals?
List Possible Alternatives to Improve
Profits
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Increasing sales income
Decreasing planned expenses
Decreasing cost per unit / new products
Profit Planning Process
7.
Determine How Expenses Vary with
Changes in Sales Volume
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8.
Can base on history?
Determine How Profits Vary with
Changes in Sales Volume
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Breakeven point
Profit Planning Process
9.
Analyze Alternatives from a Profit
Standpoint
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10.
Change sales price
Change media/ advertising budget
Reduce variable costs
Change quality of products
Stop making and selling low-margin products
Select and Implement the Plan