Profit Planning
Are You Treating Your Profit as a Residual?
Are you viewing profit as an afterthought? What does that really imply? When you focus on what's leftover, you'll only achieve what's leftover. Your company needs a specific level of profit to cover expenses, invest in new assets, save for the future, and meet tax obligations. Is your profit merely a matter of chance? Are you actively striving to generate income?
When a company is losing money, it typically boils down to one of three issues:
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An ineffective profit plan
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A poorly structured organization that fails to execute the plan
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Inadequate monitoring of results.
To succeed, a company must have a clear Profit Plan. This includes determining the expected Gross Profit, the anticipated Net Profit, and a strategy for utilizing that Net Profit.
Think of your company as a living entity—when you the founder started your business, you gave it birth. Just as employees needs a paycheck, so does the company; its paycheck is its profit.
If you treated your employees the way you treat your company, they would leave. As a business owner you need clarity on your earnings and timelines to effectively plan for your own expenses, such as paying bills, acquiring new assets, saving for the future, and meeting tax obligations.
Your company must perform these functions. It needs a planned profit to cover old debts, invest in new assets, save for future growth, and ensure tax payments. If you neglect to provide for the company, it will ultimately fail to thrive.
