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Profit Planning

Hamish Pryde • February 27, 2013

At the start of each financial year do we take time out to sit back and examine where the money comes from? We should!

The idea behind a profit plan is to inwardly reflect how you make money. It's part of working on the business rather than simply working in the business. This is an important concept. Working in the business is dealing with today's income or problems only. Working on the business is working on tomorrow's income. By preparing a budget or what I call a profit plan, is planning to succeed. Nobody is in business to make a loss. A profit plan is part of the overall business plan. It puts a target or goal in place broken down ideally into monthly, weekly and or daily targets and indentifying key performance indicators (KPI's).  A KPI is something that has a major impact on your business. There are many factors affecting every business' performance, so it is vital to focus on a handful of these and monitor them carefully. By monitoring your actual performance compared to budget you can track the success of your business or identify problems earlier and as a result put steps in place to get back on target.

KPI's can be a number of things for example:

a)      Number of business enquires each week

b)      Conversion rate of enquires to sale

c)       Average dollar sale

d)      Gross profit margin achieved

e)      Number of chargeable hours

f)       Level of overheads

All of these KPI's measure the success or achievement towards the desired profit goal. If you can monitor it you can measure it. If the result doesn't measure up you need to do something about it. Any trends towards cash flow problems or falling profitability will show up in these KPI figures when measured against your profit plan. They will help you spot problems early on if they are calculated on a consistent basis.

By completing an annual profit plan you will benefit because you have thought about the problems of the future and tried to think about solutions to the potential problems. Perhaps a seasonal nature of the business. When applying for finance, or an extension to your overdraft, the bank wants to know if you have thought and considered how your business is going to operate in the period ahead. Have you undertaken some planning? Are you going to change the past results into better performance? How long will you be in overdraft?

The key is to plan. If you don't know where you are going, then any road will get you there.

HJ Pryde

By Hamish Pryde September 11, 2024
Paper is everywhere. We spend a lot of time and money moving paperwork around. But with today’s technology it is now possible to get rid of paper entirely. Digital documents are simpler, easier to store and send, more searchable and permanent. How long does it take to post a document to somebody via the ole stamp and envelope method, that is snail mail? It is more efficient and timelier to email the document. How many times do you go to print a document at home and find that your printer has run out of ink? Why do we still hold onto printing paper documents? Sometimes it’s just because that’s what we’ve always done and let’s face it change can be difficult at first. Paper alone is cheap. But when you start paying for printers, toner, servicing and maintenance, paper starts to look more expensive. Let alone the storage cost. Paper tax records for seven years can be quite a few boxes of paper. We have embraced some paperless technology as part of a modern business practice. This includes digital signatures, digital collaboration, paperless minutes of business improvement and coaching meetings, electronic work papers and my new digital notebook which I am enjoying. We send questionnaires via email to you to gather vital information to enable us to prepare your annual financial statements. This is a PDF document. Instead of printing the questionnaires you could save the document down into a folder of your choice then edit the PDF document and return to us. How do you edit a PDF document you ask? Once you have opened the document the Adobe online editor lets you do some things for free. The online editor works in any web browser and lets you add text, sticky notes and highlights. Click on the fill & sign button to the right of the document, then in the top toolbar click Iab text button. You can add text directly on the PDF document. Have a try next time you have a PDF document open. Xero and Farm Focus users can attach invoices directly to the transaction loaded into Xero. Then if you are looking at the rates expense in the profit and loss account or farm working account, you can drill down into the rates code and see the transactions. Then attached to each transaction is the rates invoice if you use this great functionality. All invoices can now be stored in the cloud. So why paperless? Productivity - electronic documents are instantly and simultaneously available to everyone who needs them. Reduce waiting times with less risk of loss or damage. Cost savings - you will save money on printing, postage and associated costs. You could pay less rent because you won’t need all that space for your files. Security - electronic documents are more secure than printed ones. Digital records can be password protected and rendered unreadable through encryption. Printed documents are only as secure as their proximity to a copy machine. Reduced Clutter - paperwork on desks and shelves are not only untidy it’s inefficient too. The organisation of digital files is simpler and your office will look much neater. That will help you clear your mind to focus on your business. Environmentally friendly - less printing means fewer trees cut down for pulp and less energy used to make and transport paper. Disaster recovery - if there is a fire or flood, recovery from the backup is much easier with digital storage them with paper. There are great help articles available in Xero or Farm Focus if you are not attaching invoices to payments already. To find out how click on the links below: If you would like to explore ways you can go paperless we can help.
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