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Profit Planning

Profit Planning. Profit Planning. What is it? Why is it important? Financial changes occur constantly Trace in your company Benchmark others Importance of Accounting Accounting Records. Balance Sheet. Financial structure Assets Current Assets Cash Accounts Receivable Inventory

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Profit Planning

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  1. Profit Planning

  2. Profit Planning • What is it? • Why is it important? • Financial changes occur constantly • Trace in your company • Benchmark others • Importance of Accounting • Accounting Records

  3. Balance Sheet • Financial structure • Assets • Current Assets • Cash • Accounts Receivable • Inventory • Short-term investments and Prepaid expenses • Fixed Assets • Buildings, machines, trucks

  4. Financial Structure • Liabilities • Current Liabilities • Accounts Payable • Notes Payable • Long-term Liabilities • Bonds and mortgages • Working capital • Owners’ Equity • Retained Earnings

  5. Income Statement • Revenues • Expenses • Fixed • Variable • Profit

  6. What makes a Successful Small Business? • Dun & Bradstreet • More liquidity • Value balance sheet as much as income statement • Stability over rapid growth • Long-term planning

  7. Profit Planning Process • Establish the Profit Goal • How much to do want to make? • What rate of return do investors want? • Determine the Planned Sales Volume • Sales forecast • Factors • Estimate Expenses the Planned Sales Volume • Variable v. fixed costs

  8. Profit Planning Process • Determine the Estimated Profit • Sales income + Other income - Expenses • Compare Estimated Profit with Profit Goal • Did it meet goals? • List Possible Alternatives to Improve Profits • Increasing sales income • Decreasing planned expenses • Decreasing cost per unit / new products

  9. Profit Planning Process • Determine How Expenses Vary with Changes in Sales Volume • Can base on history? • Determine How Profits Vary with Changes in Sales Volume • Breakeven point

  10. Profit Planning Process • Analyze Alternatives from a Profit Standpoint • Change sales price • Change media/ advertising budget • Reduce variable costs • Change quality of products • Stop making and selling low-margin products • Select and Implement the Plan

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