Maximize profits by planning for profits, so you earn more money.

In business, as in most games, the objective is to win.  The equivalent of the “games” final score in business is your Net Income, the last number on your P&L Statement.  Without a profit goal—and targets to be realized by month—it is impossible to know if your business is winning or losing ket alone maximize profits.

To play the game of business to win, you first need to identify what a “winning score” based on the time, money, and risk you are incurring looks like.  In business terms, this is your planned Net Income number.

The success of any company ultimately depends on management’s ability to be profitable both today and in the future through the following simplified profit equation:

You shape the results of the above formula by planning for profits versus letting them happen through luck or chance.  The best way to set your roadmap to success, one that will take your business from where it is today to where you want it to be tomorrow, starts with knowing your desired destination.  Eventually, the output of planning for profits defines what actions you must take to get there through creating and executing your “Profit Plan.”

Small business profitability and how you achieve it is found through the following five key concepts:

• Why should I be concerned about planning for profits?
• How is profit planning is different than budgeting?
• How a profit plan helps you get what you want from your business.
• Your profit plan is how you confirm whether your actions are working.
• The most significant consequence of not having a profit plan.

Why should I be concerned about planning for profits?

Your primary concern about planning for profits is grounded in the simple fact that no one starts or continues to own a business that produces losses, not profits.

No one sets out to own business “B,” yet many do just that because every company’s ability to earn a profit is impacted by too many factors to count, both within and outside of its control.   Consider the table below, showing just a few of the external and internal influences that can rock your business:

External Influences	Internal Influences
·      Political upheavals ·      Economic uncertainties ·      Societal divisiveness ·      New technology ·      Weather calamities ·      Changing market demands	·      Owner business skills ·      Employee attitudes ·      Lost sales ·      Product quality ·      Late deliveries ·      Wasted money

The cost-effective execution of your profit plan makes it easier to work through any obstacle in or out of your control. Successful business leaders create profit plans because they know how to use their employee talent, company assets, and resources to their greatest advantage. Profit planning is the core management tool or process they use to achieve this advantage.

How is profit planning is different than budgeting?

Profit planning is more than projecting budgeted numbers you would like to see on your P&L statement.  It is not the quantification of resource requirements or constraints you will run your business within.  A profit plan lays out the set of actions you commit to achieving to realize your profit level targets.

Your profit actions involve the development of an interlocking set of short-term financial targets that roll up into a master plan.  In most cases, the intended goal of your profit plan is to put more cash in the bank each month in the coming year.

An effective Profit Plan tracks and communicates your progress by the variance of actual results to planned results for each month.  Each variance report you utilize in B-CPR Step 3—Confirm the Quality of Your Profits will either confirm that you are moving closer to or farther away from owning a profitable business.

How a profit plan helps you get what you want from your business.

Your profit plan identifies the targets you plan to achieve monthly for sales, gross, operating, and net profit.   As you define your profit targets, the actions needed to realize those targets also become apparent.  Effective leaders then use their management skills to direct their employees to accomplish their stated profit plan goals and objectives.

At a minimum, you need a twelve-month profit plan to help you direct your employees’ work in a controlled and coordinated way toward accomplishing your documented goals and objectives.  You are more likely to achieve your profit targets as you work your profit plan because you are clear on what you are working to achieve.

Your profit plan is not about planning for all contingencies or possibilities.  It is about creating structure and priority guidelines for your team to follow. This framework is necessary to help your business stay on course and realize its monthly profit goals.

Your profit plan is how you confirm whether your actions are working.

Your annual profit plan will confirm whether your actions and those of your team are working or not. It is important to remember that your Profit Plan is dynamic and alive, not some theoretical document to sit on a shelf or in a file cabinet.  Your profit plan represents your best thinking on what to start, stop, or continue doing to make money in the coming year.

As your profit plan rolls by each month,  you either get confirmation that you were right in what you planned to have happened, or your results will tell you that now is the time to begin considering other approaches or opportunities.  There are only three possible outcomes to your actual profit results versus what you planned your profits to be:

The outcome of your actual versus your planned profit results tells you which action path you must take.  Without a profit plan, you never know if you should build on what’s working, stay the course, or fix what’s not working month-to-month.  Each month’s results, compared to plan, tell you whether your profit plan is on track or unrealistic.

If you aren’t hitting your profit plan numbers in months one and two, and you are below the previous year’s profit performance, then you have the necessary data to immediately identify what area(s) you specifically need to change if your business is to have a successful year.

When things aren’t going as you would like, you think of strategies to make real-time changes when playing any game. You more thoughtfully consider your next moves because you aren’t playing the game to lose. The same is true in business. When you have a well-thought-out profit plan with goals that aren’t close to your most recent P&L report, you have reliable data on which to act.

The question is, “What will you do differently to influence those factors performing below planned?”  Answering this question through action is how you end the profit plan period with acceptable profits for the risk you incurred.

The consequences of not having a profit plan

Failure to set clear revenue, expense, and profit targets that will direct your company actions through each month of your plan is a giant mistake.  The likely result of no profit plan is an owner running their business by one crisis to the next.  This is typically shaped by the pressing problem of the day.  Or equally short-sighted, running their business “the way I have always done things.”

Both negative consequences result in misaligned employees working in different directions due to a lack of shared vision derived from documented profit objectives and goals.  Lack of a clear profit plan creates confusion, inefficiency, and higher costs through waste and inefficiency. The result?  Smaller profits with decreasing levels of cash in the bank.

Without a profit plan, you and your employees are “flying blind,” hoping that your profits and cash flow results will mirror the intensity of your efforts.  Unfortunately, all too often, this is not the case.  The efforts you and your employees set out to make are continually being hampered by day-by-day problems, which you are forced to face, without any direction from your plan.  Profit plan actions—daily—better ensure that your hard work will lead to company growth and profit.

What three areas are holding you back from making more money?

Click here to have a certified BusinessCPR™ Business Scientist at no charge identify up to three areas in your business that are draining profits and ultimately cash from your hard work.

Within forty-eight hours of receipt of your P&L Statement by month, you will receive back by email your free identification of three areas in your business that are draining cash and profits from your operations.