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The concept of profit planning is a mystery to many business owners, but it can be a vital tool in your business planning. It helps you understand opportunities and risks, as well as supporting business growth. We spoke to Empiric Partner Mike Duff about his work with clients, developing and using profit plans to help businesses to maximise their performance.

 

Mike, what’s a profit plan and how is it different to having a business plan?

Profit planning is a way to proactively manage the growth of your business. A profit plan is quite different to a business plan, and both are useful. A business plan outlines your core activities, objectives and a detailed roadmap to achieving them. But a profit plan is about using your key business data to forecast and maximise your future sales, costs and profits. This enables you to uncover what’s going well and take a hard look at what isn’t working, so you can make informed decisions.

 

You’re clearly very enthusiastic about profit planning, but what about business leaders who aren’t keen on data analysis?

A lot of people definitely find working with numbers challenging! Thank goodness there are people like me who love scrutinising numbers: I can be a really effective bridge for them between their data and what it means. Having a profit plan brings a new and insightful level of information to your decision making. I’ve often seen clients who didn’t enjoy looking at their figures in the past become really enthusiastic when the fog “lifts” and they are able to start using this information to actually run their business rather than having to rely on instinct alone.

 

Can you give us an example?

I have so many! Here’s an example that most employers will recognise. Many clients have real issues over staffing levels. They face difficult decisions around hiring or firing team members as their growth fluctuates. Putting together a profit plan helps identify patterns over time, such as seasonal or contract-related changes. Strategies and solutions emerge that help clients plan staffing levels, such as using a mix of permanent and temporary staff. This can avoid expensive and emotionally difficult consequences to changing needs. It’s always a huge relief for clients when they find solutions to such a fundamental issue.

 

So what does a profit plan include?

It’s an interesting mix of sales, financial and other data, typically using the last one or two years as a starting point and then factoring in future plans. Each profit plan is unique, but usually it will include a breakdown of turnover, expenses including operational, administrative and staffing costs as well as profitability. As new data becomes available, everything is tracked and analysed and that’s where the magic happens. Patterns emerge and asking the right questions helps clients understand exactly what is affecting their business performance – and what changes might be needed to maximise the future growth and success of their business.

 

How do you put together a profit plan for a client?

Most SMEs use an accounts package like Xero or QuickBooks. With confidentiality agreements in place, clients can easily set up access to this online data in the same way they might do for their accountant. This is usually the source of most of the data I need, with additional input from the team to help fill in any gaps or provide additional information. It’s not time consuming for my clients at all, and once the plan is in place, we meet quarterly or monthly to review the data and talk through what it means.

 

How have you seen profit plans benefit your clients?

Each client is unique and the profit planning process gives a refreshing and relevant perspective on the strengths and challenges of a business. For clients who have relied on year-end or management accounts, this can be the first time they’ve considered using forecasted data. Rather than making decisions and creating budgets based on outdated or irrelevant data they now have the benefit of working towards their growth plan. I assist clients to set out their objectives, become accountable for achieving them and to learn from and refine the process as they move forward.

This has very practical consequences. For example, it can highlight problems early, giving you an opportunity to fix things quickly. In one instance, a company was seeing a huge increase in transport costs. It turned out that new staff members were using expensive distribution options that were pushing costs dramatically upwards. Swift management intervention and staff training resolved this instantly. Without a profit plan in place, issues like this can go undiscovered for months or longer.

 

Mike, you’ve convinced us. Any final thoughts?

Even if you’re not passionate about numbers, if you embrace profit planning you won’t look back. It’s a brilliant route to understanding how to grow your business and improve your profits: you’ll wonder how you ever managed without it!

 

To find out how profit planning can transform your approach to business growth, talk to Empiric Partners. We’ll work with you to explore your business goals, opportunities and make sure your business is on track for a healthy future.

 

Contact us for more information: info@empiricpartners.com or 01256 338440.

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