Money Talk: Planning for Profit

Stuart Margolis

September 1, 2014

Historically, as the U.S. economy improves, the print industry follows. Based on that logic, printers should see growing success. Right? It’s quite possible and with some hard work and planning it is probable. As usual, it’s not time to kick back and take it easy. On the contrary, it’s time to rebuild. Rebuilding is never easy. The trend among profit leader is “proceed with due haste”.

Reflect before rebuilding

They say adversity makes us stronger. It’s true. So before you rush into planning, budgeting, and forecasting, reflect. Think about the past. Think about the empire you built before the recession hit. Was the company structure sound? Were costs contained? Did high profit levels coincide with high sales levels? If answers are “yes” overall, blow the dust off the old plans and consider them. If any answer is “no,” then learn from mistakes.This is your golden opportunity to “grow smarter.” Going through hard times forces us to persevere. Perseverance forces us to do more with less. “Doing more with less” is a distinct characteristic shared among profit leaders. The tough question is, can you learn to grow while observing “doing more with less.”

Plan for success

Plans and forecasts can be used for many purposes such as: setting growth expectations, establishing profit goals, putting appropriate cost controls in place, establishing accountability, setting targets, and proactively executing sales. A successful plan allows the management team to consider all alternatives and put them down on paper. A forecast forces management to view all considerations as they interact together, then figure out which objectives can feasibly be achieved relative to the constraints place upon them by the other objectives. Everything works together. Setting high sales goals without establishing accountability makes achievement difficult. Establishing high profit goals without cost containment is like swimming upstream without a paddle.

Here’s a simplified plan:

	PY Actual Results	% of Sales	CY Plan	% of Sales	Source of information

Sales	4,500,000	100.0%	5,000,000	100.0%	per customer/salesperson projections

Materials/Outside Services	1,530,000	34.0%	1,700,000	34.0%	historical % of sales +/- production changes

Value Added	2,970,000	66.0%	3,300,000	66.0%

Factory Labor Costs	1,170,000	26.0%	1,250,000	25.0%	per detailed schedule by employee
Factory Overhead	736,000	16.4%	775,000	15.5%	historical $ +/- COLA and planned changes

Gross Profit	1,064,000	23.6%	1,275,000	25.5%

Admin Payroll	200,000	4.4%	225,000	4.5%	per detailed schedule by employee
Other Admin Expenses	220,000	4.9%	250,000	5.0%	historical $ +/- COLA and planned changes
Sales Payroll Costs	360,000	8.0%	400,000	8.0%	per detailed schedule by employee including comm. on projected sales
Other Selling Expenses	142,000	3.2%	150,000	3.0%	historical $ +/- COLA and planned changes
Operating Income	142,000	3.2%	250,000	5.0%
Interest Expense	70,000	1.6%	65,000	1.3%	per debt service schedule
Other Income	20,000	0.4%	25,000	0.5%
Income Before Taxes	92,000	2.0%	210,000	4.2%

Through forecasting, look at each line item and decide if each is feasible relative to the other line items. Tweak the plan accordingly. For example, if an increase in sales will add to the top line but also add a disproportionate amount of materials and labor to produce it, evaluation is necessary. If health care costs absorb too much of the labor cost you can afford, evaluate it. Careful planning will help you stay on target to reach goals.

Benchmark

Consider outside resources to gain competitive data. Use sources like The Printing Industries of America Ratios to see how you compare to others. Research your areas of concern. If you cannot figure out the problem or reason “everyone is doing better than you” get help from an industry expert.

Monitor results

Your forecast should be compared with actual results throughout the year and updated if needed for major changes. We suggest that all key managers participate in development of the plan and forecast, not only to provide departmental input, but also to achieve buy-in through an understanding of constraints.

Establish buy-in

Once a forecast is established, managers should translate the message to employees. The forecast affects the job of every individual. Tell each one what they can do to help achieve the goals, or better yet, ask them how the company can better achieve its growth and profit goals. Here are some examples of ways employees can work towards the goals:

Accounts Receivable (A/R) – Keep A/R current at all times, and watch for new patterns in receivables (slow payments, etc.) If customers are slow or no pay, call them. Don’t ignore them. Work it out.
Accounts Payable (A/P) – Keep vendors informed about your business and its needs. Continue to assess viability of key suppliers and outside contractors. Don’t leave yourself vulnerable.
CFO/Controller – Again, constant communication is essential to building ongoing, strong relationships for future financial needs.
Production –Control production hours on the floor. Keep efficiency high. Keep equipment maintained. Eliminate unnecessary waste.
Sales and CSRs—Communicate with customers and communicate with management. Understand customer needs and propose change in jobs to address their needs. Inform management of any changes in a customer’s need, before it affects the order. Sometimes management can offer creative suggestions. Work with estimating to make sure sales are profitable.

Regardless of company size, culture, or specialty, opportunities exist. Seek them, analyze them, and go for making this year a great one.

If you have questions or concerns regarding planning and forecasting, call us. We can help establish priorities and set attainable goals.

Stuart Margolis is a preeminent financial expert for print media and packaging. Most notably, he is recognized for profit optimization that enables companies to grow through increased sales, capacity expansion, acquisition, and cost optimization. Methodologies developed in his books: A Printer’s Chart of Accounts and A Printer’s Guide to Profits 1-2-3: The Key to Value-Added Financial Management are implemented by thousands of companies nationwide. Stuart compiles the annual Printing Industries of America Financial Ratio Reports which are utilized as the industry’s premier benchmarking tool.

A Certified Public Accountant, Stuart holds a Bachelor’s Degree from the University of Pennsylvania Wharton School of Business in Economics and Accounting and a Master’s Degree in Taxation from Villanova University.

He is an active member and consultant for Printing Industries of America and GAA. In 2010, Stuart received the esteemed Printing Industry of New England Most Influential Person Award.

About Margolis Partners

Margolis Partners has long been recognized as the financial expert for family-owned businesses with a specialty in the printing, packaging and allied graphic communications industries, assisting thousands of companies with strategic and financial management, valuation, mergers/acquisitions, accounting, audit and tax services. The firm is noted for its expertise in enabling companies to optimize profits. Proudly, it is the purveyor of the industry’s Value-Added Principles of Management, and compiles the annual Printing Industries of America Ratios, the printing industry’s premier financial benchmarking tool.