Tab-20 Operating Profit Target: Page 29. The bottom-up Profit Plan begins with the Operating Profit Target before discretionary profit sharing distributions and income tax. The bonus and retirement plan contribution calculated in the labor budget is added to the desired increase in net worth. The bonus and 401K or retirement plan contribution cannot be calculated until the Tab-21 Labor Budget is completed. The Operating Profit Target is composed of:
- increase in net worth
- + income tax provision
- + discretionary cash bonus and retirement plan contribution
- + dividend or principals’ bonus or return on investment
- – less non-operating income such as interest and gain on sale of equipment
- = operating profit target
The Profit Plan provides the balance between the marketing plan revenue and the personnel plan labor by calculating the revenue required to make the desired profit. The monthly revenue objective is compared to the actual revenue backlog projected over the current profit plan year. If the projected revenue backlog is not enough to support the target utilization rate for the existing labor force, then labor may need to be reduced to keep the Profit Plan on target. The alternative is to increase revenue by adding new projects to the revenue backlog.