1. 13-1 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved.

2. 13-2 Profit Planning Need For Profit Planning Need For Profit Planning Changes In Company Financial Position Changes In Company Financial Position Financial Structure Financial Structure Planning For Profit Planning For Profit Chapter 13 Nick Rowe/Getty Images

3. 13-3 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Profit Planning “…a series of prescribed steps to be taken to ensure that a profit will be made.”

4. 13-4 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. How Much Profit?  For a private, nonfinancial business: What do you think is a “fair” profit to make on its sales, after paying its income taxes? (Give as a percentage of sales after taxes) __________ What do you think the average business makes, in a year, as sales after taxes. ___________  For a grocery supermarket: What do you think is a “fair” profit to make, as a percentage after taxes? _________ What do you think the average supermarket makes in profits after taxes? _________ 5% ½ - 1 ½ %

5. 13-5 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Drop In Financial Position  Uncollectible A/R  Too Many Assets Negative Cash Flow

6. 13-6 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Benchmarking “…setting up standards (for reference) and then measuring performance against them.”

7. 13-7 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Accounting Records “…records of a firm’s financial position that reflect any changes in that position.”

8. 13-8 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Accounting Equation Owners’ Equity +Liabilities Total Assets

9. 13-9 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Balance Sheet

10. 13-10 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Current Assets Cash Accounts Receivable Inventory Short-Term Investments Prepaid Expenses PhotoLink/Getty Images

11. 13-11 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Fixed Assets EquipmentBuilding Accumulated Depreciation Net Fixed Assets Ross Anania/Getty Images

12. 13-12 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Total Liabilities  Current Liabilities  Accounts Payable  Notes Payable  Long-Term Liabilities  Long-Term Loans  Mortgage Payable Royalty-Free/CORBIS

13. 13-13 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Working Capital Current Assets - Current Liabilities Working Capital

14. 13-14 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Owners’ Equity + Capital Stock + Retained Earnings (c) Duncan Smith/Getty Images

15. 13-15 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Income Statement

16. 13-16 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Revenue Cash Accounts Receivable Royalty-Free/CORBIS

17. 13-17 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Types Of Expenses FixedVariable Steve Cole/Getty Images

18. 13-18 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Expenses  Materials  Salaries  Utilities  Depreciation  Rent  Building Services  Insurance  Interest  Office & Supplies  Sales Promotion  Taxes & Licenses  Maintenance  Delivery  Miscellaneous

19. 13-19 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Profit (Income) “…the difference between revenue earned and expenses incurred.”

20. 13-20 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Well-Managed Small Business Liquid Liquid Balance Sheet Important Balance Sheet Important Stability vs. Growth Stability vs. Growth Long-Range Planning Long-Range Planning Royalty-Free/CORBIS

21. 13-21 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Initial Steps In Profit Planning 1)Establish Goal 2)Determine Volume For Profit 3)Estimate Expenses 4)Determine Estimated Profit 5)Compare Estimate With Goal Ryan McVay/Getty Images

22. 13-22 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Action Steps In Profit Planning 6)List Alternatives 7)Determine Expenses 8)Determine Profits 9)Analyze Alternatives 10)Select & Implement Lawrence Lawry/Getty Images

23. 13-23 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Need For Profit Planning  Uncertainty  Planning =

24. 13-24 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Planning For Profit 1.Establish Profit Goal$ 52,000 2.Determine Sales Volume 530,000 3.Estimate Expenses 490,000 4.Determine Profit Estimate 40,000 5.Compare Profit To Goal -$12,000 6.List Alternatives a.Change Sales Volume b.Decrease Expenses c.Add Products/Services d.Subcontract

25. 13-25 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Action Steps In Profit Plan 7.Expenses Vary With Volume Sales Expenses Sales Expenses a.$364,000 $364,000 b.$530,000 $490,000 c.$700,000 $618,700 8. Volume Profit a.$364,000 $ -0- b.$530,000 $ 40,000 c.$700,000 $ 81,300 9.Analyze Alternatives 10.Select/Implement Plan

26. 13-26 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Breakeven Chart

27. 13-27 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Pro Forma Income Statement