Thread: Advantages of Profit Planning

Hi

Profit planning offers many advantages to your business. The modest investment in time required to develop and implement the plan will pay liberal dividends later. Among the benefits that your business can enjoy from profit planning are the following:

* Performance evaluation. The profit plan provides a continuing standard against which sales performance and cost control can quickly be evaluated.
* Awareness of responsibilities. With the profit plan, personnel are readily aware of their responsibilities for meeting sales objectives, controlling costs, and the like.
* Cost consciousness. Since cost excesses can quickly be identified and planned, expenditures can be compared with budgets even before they are incurred, cost consciousness is increased, reducing unnecessary costs and overspending.
* Disciplined approach to problem-solving. The profit plan permits early detection of potential problems so that their nature and extent are known. With this information, alternate corrective actions can be more easily and accurately evaluated.
* Thinking about the future. Too often, small businesses neglect to plan ahead: thinking about where they are today, where they will be next year, or the year after. As a result, opportunities are overlooked and crises occur that could have been avoided. Development of the profit plan requires thinking about the future so that many problems can be avoided before they arise.
* Financial planning. The profit plan serves as a basis for financial planning. With the information developed from the profit plan, you can anticipate the need for increased investment in receivables, inventory, or facilities as well as any need for additional capital.

Thanks

Hi

The actual process of profit planning involves looking at several key factors relevant to operational expenses. Putting together effective profit plans or budgets requires looking closely at such expenses as labor, raw materials, facilities maintenance and upkeep, and the cost of sales and marketing efforts. By looking closely at each of these areas, it is possible to determine what is required to perform the tasks efficiently, generate the most units for sale, and thus increase the chances of earning decent profits during the period under consideration. Understanding the costs related to production and sales generation also makes it possible to assess current market conditions and design a price model that allows the products to be competitive in the marketplace, but still earn an equitable amount of profit on each unit sold.
There are several advantages to engaging in profit planning. The most obvious is evaluating the overall operation for efficiency. If profits for the most recently completed period fall short of projections, this prompts an investigation into what led to the lower returns. Changes can then be made to the operation in order to increase the chances for higher profits in the next period.



thanks

i want to share some advantages....

1. Budgets provide a means of communicating management's plans through the organization.
2. Budgets force managers to think about and plan for the future. In the absence of the necessity to prepare a budget, many mangers would spend all of their time dealing with daily emergencies.
3. The budgeting process provides a means of allocating resources to those parts of the organization where they can be used most effectively
4. The budgeting process can uncover many potential bottlenecks before they occur .
5. Budgets coordinates the activities of the entire organization by integrating the plans of the various parts of the organization. Budgeting helps to ensure that everyone in the organization is pulling in the same direction.
6. Budgets provide goals and objectives that can serve as benchmark for evaluating subsequent performance.