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Action Plans Page 2 -

Costs and Benefits

Page 2 of the Action Plan template is where you estimate the cash flow for an action plan each year. If your company has a process to estimate future sales (benefits) and the associated costs, use it.

It is important that all action plans use the same computations, so you can compare. Keep the process simple; it should be self-evident to the decision maker how you computed the numbers. You'll need gross margin, tax rates on operations and depreciation policy from finance for the calculations.

Calculating the costs of a strategyNet "Incremental" Sales

Start with an estimate of future sales the action plan creates.

Earnings before taxes

Compute earnings before taxes by multiplying net incremental sales X your historical gross margin.

Savings in or additional direct operational costs

Add (any incremental savings) or subtract (any incremental expenses) for changes in your operational processes, your direct overhead (Sales, General and Administrative - SG&A).

Earnings after taxes

Subtract your taxes. (earnings before taxes +/- incremental direct overhead) X your historical tax rate.

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