14-1 profit planning need for profit planning need for profit planning changes in company financial...
TRANSCRIPT
14-1
Profit Planning
Need For Profit PlanningNeed For Profit Planning Changes In Company Changes In Company
Financial PositionFinancial Position Financial StructureFinancial Structure Planning For ProfitPlanning For Profit
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Nick Rowe/Getty Images
14-2McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Profit PlanningProfit Planning“…“…a series of prescribed a series of prescribed
steps to be taken to steps to be taken to ensure that a profit will be ensure that a profit will be
made.”made.”Profit planning must Profit planning must
precede other activitiesprecede other activities
14-3McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
RevenueRevenue
CashCash
Accounts Accounts Receivable ReceivableRoyalty-Free/CORBIS
14-4McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Types Of ExpensesTypes Of Expenses
FixedFixed
VariableVariableSteve Cole/Getty Images
14-5McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
ExpensesExpensesMaterialsMaterialsSalariesSalariesUtilitiesUtilitiesDepreciationDepreciationRentRentBuilding Building ServicesServices
InsuranceInsuranceInterestInterest
Office & Office & SuppliesSupplies
Sales Sales PromotionPromotion
Taxes & Taxes & LicensesLicenses
MaintenanceMaintenanceDeliveryDeliveryMiscellaneousMiscellaneous
14-6McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Profit (Income)Profit (Income)
“…“…the difference the difference between revenue between revenue
earned and expenses earned and expenses incurred.”incurred.”
14-7McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Well-ManagedWell-ManagedSmall Business Small Business (according to Dun & Bradstreet(according to Dun & Bradstreet))
LiquidLiquidBalance Sheet Balance Sheet ImportantImportant
Stability vs. GrowthStability vs. GrowthLong-Range PlanningLong-Range Planning
Royalty-Free/CORBIS
14-8McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Initial StepsInitial StepsIn Profit PlanningIn Profit Planning
1)1) Establish GoalEstablish Goal2)2) Determine Volume Determine Volume
For Profit For Profit3)3) Estimate ExpensesEstimate Expenses4)4) Determine Estimated Determine Estimated
ProfitProfit5)5) Compare Estimate Compare Estimate
With GoalWith Goal
Ryan McVay/Getty Images
14-9McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Action StepsAction StepsIn Profit PlanningIn Profit Planning
6)6) List alternativesList alternativesto improve profitsto improve profits
7)7) Determine how Determine how expenses & profitsexpenses & profitsvary with volumevary with volume
8)8) Analyze alternatives vis-à-vis profitAnalyze alternatives vis-à-vis profit
9)9) Select an alternative & implementSelect an alternative & implement
Lawrence Lawry/Getty Images
14-10McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Need For Profit PlanningNeed For Profit Planning
UncertaintyUncertainty PlanningPlanning==
14-11McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Planning For ProfitPlanning For Profit1.1. Establish Profit GoalEstablish Profit Goal $ 52,000$ 52,0002.2. Determine Sales VolumeDetermine Sales Volume 530,000 530,0003.3. Estimate ExpensesEstimate Expenses 490,000490,0004.4. Determine Profit EstimateDetermine Profit Estimate 40,000 40,0005.5. Compare Profit To GoalCompare Profit To Goal - -
$12,000$12,0006.6. List AlternativesList Alternatives
a.a. Change Sales VolumeChange Sales Volumeb.b. Decrease ExpensesDecrease Expensesc.c. Add Products/ServicesAdd Products/Servicesd.d. SubcontractSubcontract
14-12McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Action Steps In Profit PlanAction Steps In Profit Plan7.7. How Do Expenses Vary With VolumeHow Do Expenses Vary With Volume
SalesSales ExpensesExpensesa.a. $364,000$364,000 $364,000 $364,000b.b. $530,000$530,000 $490,000 $490,000c.c. $700,000$700,000 $618,700 $618,700
8.8. VolumeVolume ProfitProfita.a. $364,000$364,000 $ -0- $ -0-b.b. $530,000$530,000 $ 40,000 $ 40,000c.c. $700,000$700,000 $ 81,300 $ 81,300
9.9. Analyze AlternativesAnalyze Alternatives10.10. Select/Implement PlanSelect/Implement Plan
14-13McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Breakeven ChartBreakeven Chart
14-14McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Pro Forma Income StatementPro Forma Income Statement
14-15McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
ExerciseExercise
Perform a profit plan for:Perform a profit plan for:A consulting business (2 groups)A consulting business (2 groups)A day care center (2 groups)A day care center (2 groups)
Compare groups – who is most Compare groups – who is most realistic?realistic?
14-16
Budgeting And Controlling Operations And Taxes
Small Business ControlSmall Business ControlTypes Of BudgetsTypes Of BudgetsObtaining Information Obtaining Information & Ratios& RatiosTaxes & Tax SystemTaxes & Tax SystemRecord Keeping & Tax ReportingRecord Keeping & Tax ReportingFactors/Problems In Getting Factors/Problems In Getting CreditCredit
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Photodisc Collection/Getty Images
14-17McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
ControlControl
“…“…the process of the process of ensuring that ensuring that
organizational goals organizational goals are achieved.”are achieved.”
14-18McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Control ProcessControl Process1. Setup Standards1. Setup Standards
2. Measure Performance2. Measure Performance
3. Actual vs. Planned3. Actual vs. Planned
4. Deviations Excessive?4. Deviations Excessive?
5. Take Corrective Action5. Take Corrective Action
14-19McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Set StandardsSet StandardsUnits Consumer/ProducedUnits Consumer/Produced
Standard Hours Per UnitStandard Hours Per UnitMiles Per GallonMiles Per Gallon
Price Paid/Charged- Price Price Paid/Charged- Price Per UnitPer Unit
RequiresRequiresIntuitionIntuitionPast PerformancePast PerformanceMeasurementMeasurementComparisonComparisonCommunicationCommunication
Keith Brofsky/Getty Images
14-20McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Effective ControlsEffective ControlsTimelyTimelyCost EffectiveCost EffectiveAccurateAccurateQuantifiableQuantifiableMeasurableMeasurableIndicate Cause/EffectIndicate Cause/EffectResponsibility of oneResponsibility of oneAcceptableAcceptable
PhotoDisc Imaging/Getty Images
14-21McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
BudgetBudget
“…“…a detailed statement a detailed statement of financial results of financial results
expected for a given expected for a given future period.”future period.”
14-22McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Types Of BudgetsTypes Of Budgets
CapitalCapital
OperatingOperating
Cash FlowCash FlowSteve Cole/Getty Images
14-23McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Operating BudgetOperating Budget
•SalesSales
•ProductionProduction
•PersonnelPersonnelRoyalty-Free/CORBIS
14-24McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Cash Flow BudgetCash Flow Budget$
$
$
$$ Plan Daily/Weekly Cash NeedsPlan Daily/Weekly Cash Needs$
$
$
$$ Plan Monthly Cash NeedsPlan Monthly Cash Needs$
$
$
$$ Prepare For Cash Flow CrisisPrepare For Cash Flow Crisis• Establish/Maintain Good CreditEstablish/Maintain Good Credit
• Set Aside Funds To Earn InterestSet Aside Funds To Earn Interest
• Schedule PaymentsSchedule Payments
• Keep Fixed Costs Low & Tie Variable Keep Fixed Costs Low & Tie Variable Costs To RevenueCosts To Revenue
14-25McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Cash Budget FormatCash Budget Format
BudgetBudget ActualActual
Expected Cash ReceiptsExpected Cash Receipts $$$$$$$$ $$$$$$$$
Expected Cash PaymentsExpected Cash Payments $$$$$$$$ $$$$$$$$
Cash BalancesCash Balances $$$$$$$$ $$$$$$$$
Cash- Capital InvestmentCash- Capital Investment $$$$$$$$ $$$$$$$$
14-26McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Cash BalanceCash Balance
Beg. Of Month- Balance
+ Total Cash Receipts
- Total Cash Payments
End Of Month- Balance
14-27McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Budgetary ControlBudgetary Control
“…“…the system of the system of budgets used to control budgets used to control a company’s financial a company’s financial
activities.”activities.”
14-28McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Credit/Collections ControlCredit/Collections Control
Identify Slow PayersIdentify Slow Payers
Investigate Customer’s Ability Investigate Customer’s Ability & Willingness To Pay& Willingness To Pay
Monitor Past DueMonitor Past Due
Write-Off UncollectiblesWrite-Off UncollectiblesSteve Cole/Getty Images
14-29McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
AuditAudit“…“…a formalized a formalized
examination and/or examination and/or review of a review of a
company’s financial company’s financial records.”records.”
14-30McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Types Of AuditsTypes Of Audits
FinancialFinancial
InternalInternal
OperationsOperations
14-31McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
FeedbackFeedback
Obtain InformationObtain InformationObservationObservation
Oral ReportsOral Reports
Written Memos/ReportsWritten Memos/Reports
Compare Actual vs. StandardsCompare Actual vs. Standards
Jacobs Stock Photography/Getty Images
14-32McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Causes OfCauses OfPoor PerformancePoor Performance
Wrong ObjectivesWrong ObjectivesCustomers Not BuyingCustomers Not BuyingPoor SchedulingPoor SchedulingTheft/SpoilageTheft/SpoilageToo Many EmployeesToo Many EmployeesLost OpportunitiesLost OpportunitiesToo Much Free Service/DonationsToo Much Free Service/Donations
14-33McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
RatiosRatios
“…“…relationships relationships between two or more between two or more
variables.variables.
14-34McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Ratio Comparison ValuesRatio Comparison Values
Firm’sFirm’s•Current ValueCurrent Value•Past ValuePast Value
Firm’sFirm’s•Current ValueCurrent Value• Industry ValuesIndustry Values
Can Be InterrelatedCan Be Interrelated
14-35McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Financial RatiosFinancial Ratios
14-36McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
U.S. Tax SystemU.S. Tax SystemDetermines Taxes Determines Taxes
& Who Will Pay & Who Will Pay
Collection Of TaxesCollection Of Taxes
Internal Revenue Service- Internal Revenue Service- www.irs.ustreas.gov
14-37McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
TaxesTaxes
IndirectIndirect
DirectDirect
14-38McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Selected Direct TaxesSelected Direct Taxes
14-39McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Tax EffectsTax EffectsIncome Tax On ProfitsIncome Tax On ProfitsEmployer Withhold/MatchEmployer Withhold/MatchOwner Personal TaxesOwner Personal TaxesTransfer Of OwnershipTransfer Of OwnershipBusiness DecisionsBusiness DecisionsGovernment Administrative Cost Government Administrative Cost Of CollectionOf Collection
14-40McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Types Of TaxesTypes Of Taxes
Excise/Intangible Excise/Intangible PropertyProperty
Sales & UseSales & Use
Federal, State, & Federal, State, & Local Income Local Income S. Meltzer/PhotoLink/Getty Images
14-41McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Licenses, PermitsLicenses, Permits& Registrations& Registrations
FederalFederalBusiness LicenseBusiness LicenseEmployer’s Federal Tax Employer’s Federal Tax
ID Number ID NumberMailing PermitsMailing Permits
StateStateIncorporation/PartnershipIncorporation/PartnershipTrade Name RegistrationTrade Name RegistrationProfessional RegistrationsProfessional Registrations
City/CountyCity/CountyZoning PermitsZoning PermitsBuilding PermitsBuilding Permits
Royalty-Free/CORBIS
14-42McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Taxable IncomeTaxable Income
“…“…total revenues total revenues minus deductible minus deductible
expenses.”expenses.”
14-43McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Deductible ExpensesDeductible ExpensesCost Of Goods SoldCost Of Goods Sold
SellingSelling
AdministrativeAdministrativePhotoDisc/Getty Images
14-44McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Cost of Goods SoldCost of Goods Sold& Inventory Valuation& Inventory Valuation
First-In, First-Out First-In, First-Out (FIFO)(FIFO)
Last-In, First-Out Last-In, First-Out (LIFO)(LIFO)
Average CostAverage CostKim Steele/Getty Images
14-45McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Employment-Related TaxesEmployment-Related Taxes
Income Tax WithholdingIncome Tax WithholdingSocial Security/MedicareSocial Security/MedicareUnemployment Unemployment CompensationCompensationFederal AdministrationFederal AdministrationStateState
Workers’ CompensationWorkers’ Compensation
14-46McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Owners’ Personal TaxesOwners’ Personal TaxesSalaries & Bonuses Withdrawn Salaries & Bonuses Withdrawn From CompanyFrom Company
DividendsDividendsContract For Business Contract For Business SaleSaleNoncompete ClauseNoncompete ClauseSeller Warranties & RepresentationsSeller Warranties & RepresentationsPurchase PricePurchase Price
Retro Americana
14-47McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Credit ManagementCredit ManagementDecide Method Of Customer Decide Method Of Customer
PaymentPaymentCashCashCheck/DebitCheck/DebitCreditCredit
Set Credit Policies & PracticesSet Credit Policies & PracticesAdminister Credit OperationsAdminister Credit Operations
Jack Star/PhotoLink/Getty Images