Most business leaders will be familiar with the concept and process of business planning. But how many have explored the concept of profit planning. Here, we look at the key roles each plan can play in supporting your business growth in 2024.
Here’s When You Need a Business Plan
If you are starting a new business, then having a business plan makes a lot of sense. It doesn’t always need to be a long document, but creating a business plan prompts you to think about what you will need get your business up and running. It helps you set up and run different parts of your business from day one. It helps you avoid early pitfalls and gets your business off to a good start.
In the early days of your business you’re usually working on theories and models: a simple financial budget and cash flow forecast are essential as part of your business plan. Profit planning combines real data from your business with financial forecasting and modelling. This approach looks at how to maximise profit and build sustainable growth and comes later in the business life cycle.
When Does Profit Planning Help?
If you have an existing business that is not looking to radically change or diversify, you may feel that writing a new business plan is a time-consuming exercise that simply commits to paper what you already know and what you are already doing. Unless your business is very stable and predictable, knowing what your detailed sales and costs are going to look like month-by-month, even for the next 12 months, can seem challenging.
That said, you still have a lot to consider. How will your sales mix affect your profits and cash flow? How will this be impacted by sales and marketing efforts? How do you need to structure staff into the future. Add in the need to consider inflation and risk, and you soon realise how difficult it is to visualise the future of your business without a written plan. That’s where a profit plan comes in. It will connect to the broader goals of your business plan, and identify where you might need to adapt in future.
Profit Plans Give Focus
Unlike a business plan with its much wider scope, a profit plan has a predominant focus. It concentrates on what you need to know to maximise and sustain profit. This starts with a deep dive into the current customer mix and costing process. In Empiric Partners work with clients, we’ve seen this bring up some surprising insights. A customer that creates 50% of your sales but drains 80% of your resources and pays late may not be the best fit for your business. A client that has a healthy profit margin on paper but generates a lot of hidden costs, such as holding inventory or taking up storage, transport or administration resources, may turn out to be your least profitable client.
Adapting with Up-to-Date Information
A detailed business plan contains elements that are correct at the time of writing, such as market or staffing assumptions. But every business leader knows how quickly things can change: what actually happens in your business can be quite different to what your business plan predicted. Most business leaders won’t regularly update their business plan, as this can be time consuming. Again, this is where a profit plan can be tremendously helpful, as adjusting forecasted figures in a profit plan based on actual performance can be done much more quickly, ensuring you have – and can act on, current data about your business.
A Different Level of Accountability
Accountability around achieving a business plan often takes place over a long period, especially if your business plan has lots of high-level, major goals. Tracking progress against this plan is vital to ensure you’re meeting your core objectives and heading for growth.
Profit planning provides an additional layer of data that helps you see what’s going on in your business right now. It will give you and your team the information and motivation needed to keep things on track, or to adjust if things aren’t working. It can be transformational in terms of accountability, and means you can intervene and change approaches much earlier where you need to.
Is it Either/Or?
At Empiric Partners, we always endorse having an up-to-date business plan, even if this is a condensed plan or canvas. However, our extensive practical experience means that we also understand that a lot of successful businesses function without one.
From our perspective, it’s essential to have a profit plan or equivalent tracking process in place. Without gathering and analysing recent business information, there’s a strong likelihood that your business is not running as well as it could. This will impact your profits, investment opportunities and even the value of your business.
Whether you’re scaling up, looking for year-on-year business growth or exit planning, there is nothing more powerful than realising increasing profits. When you are working hard and cash flow is tight, having absolute confidence in your plans will definitely help you sleep well at night!
Whatever your challenges, our business and profit planning support will help you find the best way forward for growth in 2024. To find out more, talk to Empiric Partners. We’ll work with you to understand your goals and support your business growth ambitions.
Contact us for more information: email@example.com or 01256 338440.
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