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Profit planning

Ratio analysis applies to a firm’s current operating posture. But a firm must also plan for future growth. This requires decisions as to the expansion of existing operations and, in manufacturing, to the development of new product lines.

A firm must choose between productive processes requiring various degrees of mechanization or automation—that is, various amounts of fixed capital in the form of machinery and equipment. This will increase fixed costs (costs that are relatively constant and do not decrease when the firm is operating at levels below full capacity).

The higher the proportion of fixed costs to total costs, the higher must be the level of operation before profits begin, and the more sensitive profits will be to changes in the level of operation.

Profit planning can be defined as setting a number of actions that need to be taken in order to achieve a targeted amount of profit for your firm.

Learning about profit planning is very useful for every industry, including architecture.

And while great design seems like the most important thing for us architects, all businesses need to be profitable to survive.