For all you small business hopefuls looking to turn your dream into reality, don’t overlook the value of a profit plan.
Profit planning is an essential part of jumpstarting your business and operating in the long run. It is important both for you as the business owner as well as anyone else investing in your business to have an intentional roadmap in place, guiding how you’ll utilize your resources and capitalize on opportunities. Without it, you may lose track of how to best maximize your profits and plan for long-term success.
Here, we’ll explore how to make a profit plan, including the steps to take and the resources you’ll need. We will also discuss the benefits of having a plan and the potential pitfalls to avoid. In other words, we’ve got your plan for creating your plan!
What Is Profit Planning?
Profit planning is the process of setting financial goals and creating strategies to achieve them. It involves analyzing your current financial situation, estimating future income, and projecting revenue and expenses. In doing so, your plan should set a course for how you’ll handle profits and anticipate risks.
Profit planning is also a way to measure progress and ensure that your business is on track to reach its goals. If your business is not performing as expected, you can use your plan to identify potential issues and make adjustments.
Realistically, though, what does a profit plan look like?
Most often, it is a spreadsheet with a master budget working from your identified target profit, as well as an executive summary highlighting the key market, pricing structure, staffing needs, and approach to investing in marketing and operations for your business.
Feeling overwhelmed? No need! Here’s how to get started.
Steps to Making a Profit Plan
Follow these basic steps to begin shaping your plan:
- Analyze your current financial situation. Start by assessing your current financial situation, including your revenue, expenses, and debt. This will give you a better understanding of where your business stands and what goals you need to set.
- Estimate future income. Estimate how much income you expect to earn in the future. Consider factors such as seasonal trends, market conditions, and competition.
- Project revenue and expenses. After estimating your future income, you can project your revenue and expenses. This will help you determine how much money you need to make in order to reach your profit goals.
- Set financial goals. Once you have a better understanding of your financial situation, you can set financial goals for your business. This could include increasing revenue, reducing expenses, or increasing profits.
- Create strategies to achieve those goals. Now that you have set your goals, you can create strategies to achieve them. This could include marketing campaigns, cost-cutting measures, or creating new products or services.
You may find that this gets you most of the way toward building your profit plan, but if you’re still struggling to see the bigger picture, take a step back. Are there other factors influencing the success of your business? Challenges you can foresee? Don’t forget to take these into consideration when pulling together your profit plan.
Resources for Profit Planning
There are a variety of resources available to help you with profit planning. Here are a few of the most useful:
Financial software can help you track and analyze your finances. This will make it easier to project revenue and expenses and monitor progress. If you’d prefer to get professional help in this area, however, consult an accounting service or bookkeeper whom you can trust with the details.
A financial advisor can provide expert advice on how to create and implement a successful profit plan. They can also help you identify potential risks and make adjustments as needed. Consider, too, any legal or tax support you may need, depending on the type of business you’re looking to launch.
Small Business Centers
You’ll find that there are countless organizations in your city, county, or region dedicated to helping businesses like yours succeed. In Tennessee, for instance, there is the Tennessee Small Business Development Center Network, with a number of branches throughout the state that you can access in person for localized support. Be proactive in asking for help, attending classes, or refreshing your skills with free or low-cost help.
Potential Pitfalls to Avoid
While profit planning offers many benefits, here are some of the ways it can be misused or underutilized:
- Not setting realistic goals. It is important to set realistic and achievable goals. You might waste time going after goals that are too ambitious or otherwise not aligned with your product or market. Instead, focus on what’s attainable and build over time.
- Not monitoring progress. Regularly monitoring your progress is essential to ensure that your plan is working. If you don’t keep track of your progress, you may miss potential gaps in profits or expenses.
- Not adjusting for changes. Your business environment is constantly changing. It is important to regularly review your plan and make adjustments if needed.
- Not seeking advice. Seeking advice from an accountant, financial advisor, or business consultant can be invaluable. Their insight is often based on qualified training and experience that can lend you perspective and help you navigate obstacles.
When It Comes to Your Business, Be Prepared
Profit planning is an essential part of running any business. It’s an opportunity to channel your excitement into an actionable playbook, providing you and your team with business goalposts and strategies to score wins. It will also ensure that anyone who’s looking to work with you or invest in your venture has confidence in your long-term success.
Make the most of the resources available to you, learn about the common pitfalls that businesses like yours can fall into, and follow a profit plan that will help project and measure against your goals. We know you have what it takes!