What is a Profit Plan?
September 18, 2017 by Christine Tudrick, CPA
What is a Profit Plan?
In the simplest of terms, a profit plan is a set of management decisions about how your company will earn more profit!
All companies — large and small — regardless of the nature of their business, use profit planning to some degree. The scope and complexity of the profit planning process and the resulting plan tends to mirror the size and complexity of a company and its operation. For smaller businesses, the planning process may be an informal review of certain key aspects of the company’s performance by a manager or two, the owner and his financial advisor. As a business grows, the planning process becomes more formal and comprehensive. That is, more personnel are involved in reviewing and planning more aspects of the company’s performance.
What Does a Profit Plan Do?
Since the goal of any business — large or small — is to increase profit year-over-year, profit planning is essential no matter what shape it takes. Your profit plan will attempt to forecast the growth of your business, from both the revenue and the expense side.
To better understand the concept of a profit plan and the planning process in general, it is important to recognize that a plan is not merely a document. Although it may be presented through a document, the profit plan itself is a set of management decisions about what your company will do to be more financially successful. Thus, in its most basic form, profit planning is a process of deciding what you will do and how and when you will do it.
Although the true value of planning derives more from the process of making decisions than from writing the document, all too many times the best made plans do not get implemented because they have not been committed to paper. With this in mind, Gordon Advisors has designed the Entrepreneur’s Guide to Profit Planning to both assist you in the decision-making process and to help you implement your plan by showing the various components required to develop the planning document.
Even the most intelligent plan is nothing without follow-through. An effective profit plan is a management tool that your company can use to evaluate your operating results and actions plans. If your profit planning decisions are not written down, they tend to be ignored or interpreted to fit the occasion and, thus, provide a less effective guide for analyzing subsequent financial results.
Follow our our blog to read more about actionable steps you can take to design and implement a profit plan, or download our Entrepreneur’s Guide to Profit Planning for a comprehensive breakdown on performing analyses, drafting projections, and designing and intelligent profit plan.