A key part of annual planning is annual profit planning, but it is a step that not every micro business owner covers when annual planning. Calculating your predicted annual profit means digging into the numbers of your business in the past and then making informed forecasts for the future income and expenditure. Whether it be a lack of time, lack of know-how or a preference to avoid the financial reality of business it’s a step some micro business owners skip even though they shouldn’t. However, clearly if you are here then clearly you want to include annual profit planning in your annual planning process and I applaud you for that. Keep on reading to how to approach annual profit planning as a micro business owner.
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What is Annual Profit Planning?
Annual profit planning is where you set a profit goal for a 12-month period and then map out how that profit goal is going to be achieved.
In order to successfully create an annual profit plan, you’ll need to have a clear revenue target and expense forecasting. And in order to have clear revenue targets and expense forecasting, you’ll need to have a clear understanding of your offer suite, pricing, marketing, sales and operational requirements.
Due to the amount of information you need in place for annual profit planning, annual profit planning comes right at the end of stage 3 in my annual planning framework, which I use when working with micro business owners to create their annual plan.
Find out more about how I can help you create your annual plan in a Vision-to-Strategy CEO Day here.
Why Annual Profit Planning is Vital for Micro Business Owners?
As a micro business owner, you might be thinking “Is annual profit planning really necessary?”. It absolutely is, and here are a number of reasons why.
1. Micro businesses usually have smaller reserves – The majority of micro businesses don’t have massive reserves. A few months where expenses are higher than revenue and all of a sudden the business can find itself having used up its reserves and in a dangerous position from a cash flow perspective.
2. Profit and personal pay – Depending on your business structure, the amount of money you personally make may be dependent on the profit your business makes. For example, I’m based in England where limited company directors will usually pay themselves a small monthly salary and then pay themselves dividends on top of that. The amount of dividends a director can receive is directly impacted by the profit the business has made.
3. Profit and investing – To grow a business, investments need to be made. This can be investments in team, tech, equipment, learning or business support. Without a clear understanding of your projected profit making major investments might feel risky. With an annual profit plan, you’ll be able to easily see the impact of making that investment and, as a result, make a more confident investment decision.
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ANNUAL PROFIT PLANNING: A PRACTICAL GUIDE FOR MICRO BUSINESS OWNERS
Now that you know what annual profit planning is and why it is important for micro business, I’ll share the practical steps you need to follow to do annual profit planning in your own business.
Step 1 – Review the Current Year’s Profit Performance
Before creating your annual profit plan for next year, you need to look at the current year’s profit performance. The better understanding you have of the current financials, the better your future forecasting can be.
Firstly, you’ll want to look at overall revenue, overall expenses and overall profit. But then you’ll want to dig further. Depending on your offer suite, it might be that you are able to break down the profit per offer. You might also look at your revenue and expenses on a month-by-month basis to identify any seasonality that needs to be considered in future planning.
Reviewing the current year’s profit performance happens in Stage 1 of my Annual Planning Framework – Review and Reflect. You can find out more about what to include in your annual business review here. And you can access some of my favourite questions to ask whilst doing an annual reflection by entering your details in the box below.
Step 2 – Set Your Profit Financial Goals
A key part of the annual profit planning process is having a clear annual profit goal. How you decide what number to set will depend on a number of factors. Here are some common approaches.
Approach 1: Percentage Growth – In this approach, you will use the profit figure for the current year and then decide what level of growth you want.
For example, you might decide you want 50% growth. So if in 2025 your profit was £80,000, then in 2026 your profit goal would be £120,000.
Approach 2: Personal Pay – In this approach, you will have a profit figure that is based on the amount of money you want to personally be paid from the business. For example, if you want to be able to receive £300,000 in dividends, you’d need to reverse engineer the number by considering the tax implications. £300,000 divided by 0.75 = £400,000. If your business made £400,000 of profit, it would be taxed 25% (£100,000) and then leave £300,000 that could be distributed as dividends.
Approach 3: Most Profitable Year – Perhaps the current year hasn’t been your most profitable and so you don’t want to go with the percentage growth approach, but would rather go back to your previous most profitable year and then set a profit goal that is more than that so you if you achieve your profit goal it will be your most profitable year yet.
Step 3 – Align Offer Suite and Pricing with Profit Goals
Once you’ve got clear profit goals it is time to review and refine your offer suite and pricing strategy to see if that profit goal is even technically possible. For each offer, you’ll want to consider the pricing, capacity limitations, and requirements for delivering. This will help you with revenue potential and related expenses. Then you’ll need to consider all of your offers together and see if all of the individual targets when brought together are possible and also make sense for a potential buyer.
Step 4 – Sales Targets and Marketing Strategy
With a refined offer suite and pricing strategy, you are now in a place where you can create solid sales targets and then plan the marketingstrategy that will build up the level of demand to ensure those sales targets are met.
Ideally, your sales targets should be set on a monthly or quarterly basis and then your marketing can be aligned with those sales targets. For your marketing you’ll want to particularly pay attention to your businesses natural seasonality to identify moments where you may do more or less marketing than usual. With your marketing you’ll also want to be allocating resources – people and money – so you have a good understanding of the predicted marketing expenses.
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When you book a Vision-to-Strategy CEO Day you don’t only get an annual planning expert who is happy to do all the number crunching with you, but you get a marketing expert with over 15 years of experience. That means I’ll ensure you don’t just have sales targets that mean you can achieve your profit goal, but you have a marketing strategy that will generate enough demand, and exceed your sales targets, with the resources you have. For all the information and to instantly book a 2026 Vision-to-Strategy CEO Day click here. |
Step 5 – Build Your Annual Profit Plan
At this point, you should now be able to bring everything together and create your 12-month or annual profit plan.
To predict your revenue, you can look at your sales targets and pricing.
To predict your expenses, you can look at your variable costs (associated with the marketing and delivery), as well as the fixed ongoing costs your business has to operate.
Ideally, you’ll want to break this down on a month-by-month basis. This will mean that not only do you have an annual profit plan, but you can also have a cash flow forecast.
Step 6 – Monthly Monitoring
Your annual profit plan has been created, but this is just the beginning. You’ll need throughout the year to be monitoring how you are doing against your year. The annual profit plan is all estimations, but each month you’ll be able to update with the actuals. Updating with actuals monthly will help you to realise where your predicted were wrong, which will help future planning to get stronger and stronger. Also, having accurate figures may mean you decide to adjust your forecast for the rest of the year.
That’s it. You have now read the ultimate guide to annual profit planning for micro business owners
Having got to the end of this guide, you might be thinking “that’s a lot”, but it is undeniable that that putting the time and energy into create your annual profit plan once a year, and then updating throughout the year is worthwhile.
And the best bit is you don’t have to do this alone. You can hire me and I’ll help you to take you through my annual planning process, which includes creating an annual profit plan.
For all the info check out my Vision-to-Strategy CEO Days here.
| A 2026 Vision-to-Strategy CEO Day is the ultimate 1:1 strategic planning day for service-based business owners who are ready to step fully into their CEO role, want to get complete clarity on what their best year ever looks like, and leave with a results-driven roadmap to make their boldest vision for 2026 happen.
It will require you to set aside a day, you’ll have me as your planning partner, and I’ll guide you through my signature annual planning process that guarantees by the end of the end you’ll have crystal clear goals, a clear roadmap to achieve them and be excited for the year ahead. For all the information and to instantly book a 2026 Vision-to-Strategy CEO Day click here. |
