The economic climate is less than predictable, and creating a profit plan can reinforce a company’s strategic mindset, helping you make solid decisions even in uncertain times. A good profit plan includes both an operating budget and forecasted cash flow and defines the business results you want to achieve and how you will make it happen.
During a recent process of helping a handful of companies develop or update their profit plans, they expressed a renewed sense of optimism and level of control over the direction of their business. The companies who already had a profit plan in place, and adhered to it, experienced growth in the previous year. Their experiences illustrate ways you will benefit from your own. A profit plan supports financial goals, creates visibility, and provides clarity and accountability. Here’s how:
Support of Financial Goals
- Helps business owners achieve their identified financial goals by charting a course for their path forward that is based on data and history, not guesstimates.
- Enables long-term planning with the flexibility to make short-term changes.
- Dovetails with strategic planning to identify and articulate the actions needed to reach profitability objectives.
- Creates a baseline against which to measure progress.
- Builds in accountability.
Increased Visibility
- Illuminates the need to address issues and adjust – which is of great value, especially during uncertain times.
- Provides a level of detail that the business may not ordinarily see.
- Informs and becomes a detailed extension of your business plan.
- Using quarterly rolling forecasts, provides the data needed to make difficult business decisions related to:
- Inventory control
- Staffing adjustments
- Tightening credit with customers
Greater Clarity and Focus
- Affords a clear picture of whether there is a positive return on business expenses.
- Reveals expenses that may no longer be necessary for the success of the business.
- Instills confidence in business decisions, actions, and the path forward – particularly during uncertain times when planning may seem daunting.
- Is a tool to help companies make tough decisions along the way and adjust for unforeseen events.
- Helps leaders and teams understand company objectives, more clearly define how their roles impact profitability, and create engagement and buy-in.
It’s never too late to create your company’s profit plan, and your efforts will pay off. As other successful companies have learned, it’s an invaluable tool that is necessary for growth.
Rick Arthur is a CFO whose expertise is built on Financial Intelligence and 35 years in senior financial roles. Coupled with a CEO’s perspective and the experience of building his own $20M company, he brings a unique depth of insight into business from the top down.