The Basics of Profit Planning

Profit planning is a vital part of any business plan structure for a small or medium business. The
goals of small business owners include ensuring that the business makes profits year-over-year,
and that it is sustained over a period of time for growth. The business plan includes a forecast
that tries to anticipate the business growth and determine the revenue that could be generated in
that particular year. Here’s a look at the basics of profit planning for your business:

1. Evaluate your business operations: Profit planning and forecasting enables a comparison
between projected costs and spends, and the actual costs that your business is incurring. This can
help your team decide on improving cost efficiency and closing up the gaps. It also enables
better decision-making like which resources to invest in or cut costs from. Proper profit planning
will ensure that the business does not spend more than is necessary or end up not investing
enough in resources that are required.
2. Forecast marketing strategies: Marketing is one of the highest areas of expense for small
businesses because marketing efforts are directly related to getting leads for the business. The
company’s marketing efforts are categorized into various areas, and each of these need to be
evaluated for the employees and resources required to fulfill them. If the marketing costs are not
estimated properly it could affect profits, and the company will unnecessarily spend more on
marketing. Profit planning helps avoid this scenario.
3. Anticipate financial planning: Planning funds to allocate across departments and procedures
needs to begin well in advance. Profit planning anticipates the company’s financial ability to
make the maximum use of resources, with efficiency in costs and finally high profit-making
potential.
4. Carve out hiring requirements: After the entire financial projection is made and the business
plan structure is ready, the company needs to evaluate if they have enough staff to carry out all
the operations. Profit planning also estimates the number of personnel required, vis-à-vis the
work they generate which has a bearing on the company’s revenue and profits. Planning costs for
hiring requirements is also an important part of this. Profit planning is a crucial business activity
that prepares the company for the coming year, helps spread out company resources efficiently
and motivates the major stakeholders of the company to strive towards year-on-year growth.
Profit planning needs to be an activity that is carried out every year. After the end of the year,
there also needs to be an audit that compares the projection to the actual profits. This can
guarantee that the company is prepared and has a well thought-out strategy to improve every
time and maximize profits and performance.