Budgeting Basics and Beyond

Chapter 5. Profit Planning: Targeting and Reaching Achievable Goals

In profit planning, we must determine the strategy, which is one of several ways to reach a goal. But we must also determine the objective, which is the target that can be quantified and that is developed from analysis of the situation at present and in the future. And finally, we must see what is needed to implement the plan.

Profit planning involves setting realistic profit objectives and targets and accomplishing them. The plan must consider the organization structure, product line (e.g., up-to-date, obsolete), services rendered, selling prices, sales volume, costs (manufacturing and operating expenses), market share, territories, skill of labor force, sources of supply, economic conditions, political environment, risk, salesforce effectiveness, financial health (e.g., cash flow to fund programs), physical resources and condition, production schedules, human resources (e.g., number and quality of employees, training programs, relationship with union), distribution facilities, growth rate, technological ability, motivational aspects, and publicity.

Each part of the plan must be evaluated for reasonableness as well as for its effect on other parts of the plan. Trouble spots must be identified and corrected. Information should be in the simplest and clearest form. Profits may be increased by increasing revenue (selling price and/or sales volume) and reducing costs, eliminating duplication of work and inconsistencies. ...