Every business is carried out with the motive to earn profit. This profit serves as the lifeline for the business. The profit refers to the financial benefit that is realized from the business activities. It means the excess of revenue over the expenses of the business is referred to a profit. Profit is the reward for any business risk that is undertaken. Profit is the motivating factor for any businessman to carry on a business. Any profit gained goes to the business owner who may use it for personal purpose or for reinvesting it in the business.
Thus profit is the main determinant of any business’s functions. The efficiency can be measured by the profit earning capacity of the business. Whenever a financial report of the company is issued n public or a company issues a prospectus for the subscription of shares; the basic thing checked by the investors is whether the business is earning a good profit to pay out a sufficient amount to the shareholders as dividends.
Therefore, this makes it necessary for any business to plan its processes beforehand so as to maximize its profits. It will be the profits that will determine the future goals of the business. The profit cannot be planned but the factors that affect the profit earning of the business can be planned which can maximize the profit.
Profit = Revenue – Expenses
(Revenue is also known as Sales.)
In any business profit can be maximized by two ways:
1. Reduce the Expenses: Any company needs to keep a control on the expenses it incurs. Every business must ensure the reduction in the unnecessary expenses. If the business is able to reduce its expenses and use its resources more efficiently and conveniently then it will be good for the business and will help in the maximization of the profits.
2. Increase in the Sales: Sales are the major source of income in the business. It brings in the resources i.e. finance with which the business can carry out its functions. If it is fostered there will be a peek in the revenue and hence the end result i.e. profit will be maximized.
But these are not the only determinants to ensure the profit earning capacity of the business. Profit planning is a broader process which needs proper planning. There are many determinants of the profit in the business. It basically focuses on evaluating and optimizing the operational events of the business and planning them in such a way that it minimizes the cost and maximizes the profit. The operations of the business are pre planned to achieve a desired level of profit in the business. This minimum profit earning capacity of the business is checked by the business’s profit planning ability. Some of the planning strategies are:
1. Checking the Hiring Requirement: All he business functions cannot be taken out without the efficient working of the staff members. After any plan is formulated the efficiency and the requirement of the staff needs to be checked so as to see if there is any additional requirement to hire more people or to lay down the existing ones. Only the efficient workers must be hired. This will ensure timely completion of the work as well as the reduction in the cost.
2. Evaluation of Business Operations: Evaluating the business operations means that the business processes and functions must be checked before planning for the profits. The planning and forecasting of the events of the business operations help to compare the actual results of the past and the future goals of the business. It helps in a better formation of the profit plan. The plan is formed in such a manner that the main stress of the business remains on the fulfillment of the business objectives and to ensure that proper resources are available to carry out the same.
3. Forecast Marketing Strategies: The marketing strategies are directly related to getting leads for the business. If the business has an influential marketing strategy in the market, it will ensure that the consumers are aware of the business products and their availability in the market. Thus it is important to keep a proper check on the marketing strategies for influential working of the market.
4. Determining Financial Planning: The financial planning is a wide concept than the profit planning. Profit planning consists of evaluation of the functions to earn a desired profit whereas in financial planning focuses on evaluation of all the policies, expenses, profits, investments etc. that can ensure the proper working of the business and also provides the business with a proper framework to maintain all the processes intact.
5. Anticipating any additional financial needs: The financial needs of a business must be anticipated at the starting only so that the business gets a cover for proper management. If any additional funds need to be invested, then it must be taken care of by the management and all the financial and profit planning departments must be informed beforehand.
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Profit planning is a vital part of the business management. It takes care if the business is able to meet its expectations properly or not. It helps the business to prepare for the coming year, motivate the efficient and proper use of resources in the business and inspire the stakeholders to strive for year-to-year growth.
1. Preparation to meet any contingencies beforehand: The profit plans foresee the expected expenses in the business and the liabilities that the business might incur. This prepares the business to prepare for any unforeseen contingencies to be met in the future.
2. Evaluation of the performance: The timely reporting of the performance and the work done keeps a track of the proper working of the business. This sets a benchmark to be achieved by the personnel present in the business.
3. Cost Consciousness: The business plan is formulated to minimize the costs. Thus a sense of cost saving is implanted among the workers and cost accountants in the business to lower the cost as much as possible.
4. Responsibility awareness: The responsibility awareness is being imparted in the workers of the business. The different responsibilities given to the personnel ensure that they work properly towards the achievement of goals.
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