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MA A IGP R N R N GN A T E
Dv Ka nwk CA-M ng g ate ai r aosi P d j , aai Pr r n n
PROFIT PLANNING 2011
This time of year as we begin planning our client audit and tax work, the question arises as to whether or not our clients have finalized their annual Profit Plan (Budget). Typically, we find many of our clients are too busy; they are either not sure of the process or they need help. The actual Profit Planning process has become easier as technology has improved. When Profit Planning is performed by the chief financial executive of the company without much input from the managers and executives of the other functions in the business, the utilization and value is not very effective. The result is that the individuals whom can influence and, in some situations, control elements of the company’s revenues and operating expenses do not take ownership of those expected results. By decentralizing the management responsibilities and authority in the business, it becomes imperative that each executive and manager takes ownership of the operations within their sphere of control.
PURPOSE OF PROFIT PLANNING
The purpose of Profit Planning is to formally establish benchmarks of performance to achieve company target revenues and profitability. The process should also ensure participation by all management personnel in the development of the fiscal operating Profit Plan of the business. A Profit Plan helps establish goals against which the monthly business performance can be measured.
PREPARATION OF THE PROFIT PLAN
Each member of the Marketing and Sales team should identify what their revenue goals are for the year. Growth in the company’s revenue and the product mix of that growth should be included in this part of the Profit Planning process. The individual team member goals need to be consolidated and a company sales goal should be established. The goal should be presented to the President for review and approval. Once the revenue goal is established, then the related direct, indirect and G&A costs can be determined. The management team is responsible for establishing the operating expenses in each category that they believe will be required to achieve the business goals of their division or department next year.
The Profit Plan is a powerful managerial tool. It is the "Game Plan" for the business for the year. Executive and managerial personnel in the company must understand that their performance directly affects the achievement of the “Game Plan”, and therefore, they must respond in a proactive manner throughout the year. If you would like more information regarding our approach, let me know, or, if you would like us to facilitate the development of an annual Profit Plan for your organization, we can arrange a meeting with your partnerin-charge and a multi-disciplinary team to listen, reflect and provide valuable feedback to you for 2011.
David Krajanowski, CPA Managing Partner