Annual plans are generally used by business managers to help direct the business over the course of the year. Developing an annual profit plan enables you to:
- Make crucial business decisions that focus your activities and maximize your resources.
- Understand the financial aspects of your business, including cash flow and break-even requirements.
- Gather crucial industry and marketing information.
- Set specific goals and take measurements to assess progress over time.
- Expand in new and increasingly profitable directions.
- Be more persuasive to funding sources.
An annual profit plan is essentially a map to your targeted destination. Ideally, it gets you from your starting point to your goal. It gives you a clear idea of the obstacles that lie ahead and points out alternate routes.
Many people view the annual profit plan as a chore when in fact, it is an opportunity. Creating your annual plan gives you the chance to 1) learn about your industry and market as it is currently; 2) gain control over your business; and 3) obtain a competitive edge.
The annual profit planning process also helps you, as the person most responsible for the growth of your company, gain more control over both the short-term and long-term progress of your business.
While developing your profit plan, you’ll increase your understanding of the many forces that have an impact on your company’s success, which in turn will give you a stronger sense of stability. An annual profit plan provides mechanisms to enhance your management in these areas:
Marketing. By developing a marketing plan based on a well-defined target market and evaluation of your industry and competition.
Operations. By evaluating and establishing the procedures, labor deployment, and the work flow necessary to run your business from day to day.
Finances. By realistically projecting cash flow, income and expenses, and break-even points while creating channels of information to keep you fully informed of your financial picture.
Long-term development. By setting specific goals and objectives, identifying milestones, devising an exit plan (if appropriate), and determining how to position your company to respond to both internal and external changes.
Evaluating and refining your business allows you to convey your message clearly to your target market so that customers will be better able to distinguish your company from your competition.
Doing a SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats) gives you a better sense of how to position your company in relation to competitors. We discussed SWOT analysis in greater detail in our February 2013 issue.
A good annual profit plan saves you money and time by focusing your business activities, giving you more control over your finances, marketing, and daily operations, and helping you raise the capital you need.