Our approach to business planning is to set SMART profit targets because this gives you something tangible to aim for and also provides a basis for tracking progress towards your objectives.
SMART is a method of expressing an objective in a way that makes it more realistic to achieve and stands for:
Specific, Measurable, Achievable, Realistic and Time based.
Profit targets are ideally extended over a 3 year period with the first year used as the budget to track monthly sales, costs and profits and provide the basis for achieving the second and third year targets.
Since market conditions change, the business plan targets should be assessed and adjusted as necessary.
Setting realistic profit targets is achieved via the 5 stage process shown below:
| Stage | Objective | Process |
|---|---|---|
I |
Set ‘Smart’ Profit targets |
A technique used for setting SMART profit targets is to express them in the form of a Vision Statement for the business which could typically read: In 3 years time, the company will be turning over £xxx with a pre-tax profit of £yyy. |
II |
Match market demands with internal resources |
Matching market opportunities with internal resources is an essential part of ensuring that profit targets are SMART. Use the Ansoff method to establish routes to market. And Profit Optimiser Enterprises capacity planning software to match resources |
III |
Identify key success factors |
Use SWOT to identify the factors which are crucial to you achieving your profit targets.
|
IV |
Develop an action plan |
Develop an action plan to deal with each of the key success factors identified from the SWOT analysis Each action should be expressed in a SMART way and have somebody with responsibility for completing it. |
V |
Create a budget for the first year of your 3 year forecast |
Take the annual sales, costs and profit targets and break them down into monthly values to enable actual against budget performance to be measured and reported |