The Elements of a Business Plan
Content
The Elements of a Business Plan The business plan should contain enough information about the business so there is: y y y A clear, concise statement of the goals of the business Well-developed plans for achieving these goals Reliable control standards for measuring performance
All business plans should be presented in a professional manner because they may be read by potential or interested clients. Thus it is important that the plan should reflect the skills and abilities of the business owner. Executive Summary an overview of the entire business plan, and is written for an executive audience Description of the business, its location, owners, market, products and ownership structure The purpose of the plan A concise statement of the business goals Situational (SWOT) analysis an investigation of marketing opportunities and potential problems Operations Plan Description of the products Description of the production process Any future research and development plans Skills analysis personal needs and requirements Marketing Plan Analysis of existing competition Sales forecast, predicting market growth Outline of the marketing strategies for: Product Price Promotion Place (distribution) Finance Plan Breakdown of present financial requirements Financial forecasts for the next three to five years An accurate system of record keeping Financial control strategies
Marketing Marketing is a total system of interacting activities designed to plan, price, promote and distribute products to present and potential customers . y y y y Involves a wide range of activities Is directed at a wide range of both ideas and products Stresses the importance of satisfying exchanges- that is, something in return Is not limited to the activities of the business
Successful marketing uses the four Ps: y y y y Product: Brand name, packaging, positioning and warranties Price: List price, discounts, credit terms and payment period Promotion: Advertising, sales, promotion and publicity Place: Location of markets, warehousing, distribution
Accounting and Finance Accounting is a managerial and administrative tool that involves the recording of financial transactions so that a clear summary of what has happened to business money can be traced over time The main accounting reports and statements are: y y y y Balance Sheets: Annual or interim balance sheets Budgets: E.g. cash budgets, sales/income budgets, balance sheet budgets Cash Flow Reports: Statements of liquidity (e.g. monthly or quarterly cash flow statements) Revenue Statements: Also called profit and loss statements or income statements
Accounting provides information about the following: y y Profitability and return on investment Trends in earning, borrowing, sales and so on that together indicate the risks the business faces Financial status/position y y y Cash status/position Financing information Cash flows
This information will encourage; Good decision making, planning that is purposeful, confidence in the business s management and accountability
Finance refers to how a business funds its activities for instance where it gets the money to trade why it chooses to use certain lenders as well as the cost, risk and benefits of different types of borrowings y y Debt Finance is money borrowed from external lenders Equity Finance is money borrowed from internal lenders
Monitoring Monitoring is the process of measuring actual performance against planned performance. The process involves constantly asking two questions about business plan: 1. What does the business plan want to achieve 2. Are these objectives being achieved? Such monitoring involves two distinct steps: y y Establishing forecast performance standards Comparing actual performance with forecast performance that is, what are its goals?
A performance standard is a forecast level of performance against which actual performance can be compared. A performance standard can be for example: y y A 5% increase in monthly sales A production quota of 1000 units per week.
Evaluating Evaluating is the process of assessing whether the business has achieved stated goals. Once measurements have been collected in the monitoring process, the business owner can identify and investigate any discrepancies in comparison with the or iginal planned outcomes. If they aren t achieving desired results, they must work out where they are failing. If they are, they should examine what is making it succeed and re -use these strategies.
Calculate COGS, gross profit, net profit/net (loss)
Gross profit is the term given to the sales less cost of goods sold (COGS) or, mathematically. Gross Profit tells the business how much its mark -up is on the cost price of the goods it has sold. This is calculated by: Gross Profit = (Sales COGS)
Given that opening stock is the value of stock that the business has at the start of the financial year and that closing stock is the value of stock on hand at the end of the financial year. This is calculated by: COGS = (Opening stock + Purchases closing stock)
Net sales are the amount of revenue a business has earned from sales when the effects of sales returns are deducted. This is the way to calculate it in the revenue statement: Net Profit/Net (loss) = Expenses Total Revenue
Opening Stock is the value of stock that the business has at the start of the financial year. Closing Stock is the value of stock on hand at the end of the financial year.
The SWOT analysis SWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture. Strengths y y y Location Management Any aspect of business that adds value to your product or service
Weakness y y y Location Management Damaged Reputation
Opportunity y y A developing market such as the internet International Market
y Threat y y y
Mergers, joint ventures or strategic alliances
New Competitors in your market Price wars with competitors Taxation
The Importance of Business Planning The planning process is a series of actions to achieve an objective set by the business. The planning process acts as a link or bridge between the owner s ideas and the actual operation of the business; it is a way of turning dreams into reality. Any business with a plan has direction, which ultim ately saves money, time and effort. The business plan needs to analyse the whole business by examining all parts of the operation. As a result, each part of the business can function effectively and achieve its ob jectives, helping the overall success of the business.
The Importance of accurate financial and business forecasting using Financial forecasting is important for several reasons. First, it enables management to change operations at the right time in order to reap the greatest benefit. It also helps the company prevent losses by making the proper decisions based on relevant information. Organizations that can create high quality and accurate forecasts are able to "see what interventions are required to mee t their business performance targets" (Vadasz). Forecasting is also important when it comes to developing new products or new product lines. It helps management decide whether the product or product line will be successful. Forecasting prevents the company from spending time and money developing, manufacturing, and marketing a product that will fail. Accurate Financial 1. Good records help increase profitability by providing the financial data to help you operate more efficiently.
2. Accurate and complete records enable you to identify all your business assets, liabilities, income and expenses. This information can then be compared to
appropriate industry averages to help you determine what phases of your business operations are strong and which ones are weak.
3. Good records are necessary in order to prepare current financial statements like your Income Statement/ Profit and Loss Statement, your Cash-flow Projection, and you re Balance Sheet, all of which may be required by your banker a nd will be necessary if you ever seek additional funds.
4. Good records are also beneficial when the time comes to file taxes. If you have kept meticulous records, you will not over - or underpay, you will have documentation in the case of an Internal Revenue Service audit, and can help you to maximize your deductions.
The importance of Target Market Doing business without knowing what your target market is will prevent you from reaching your objectives: increased sales, market share or brand awareness. Choosing your Target Market: I. Identify Potential Customers There are two types of customer groups that you can target: individual consumers or other businesses. II. Conducting Market Research III. Choosing a Target Market
y y y
has easy access to your products and services, whether it is by visiting your store, or ordering by phone, fax, email or your Web site is not inundated with other products and services that are indistinguishable from yours is willing to pay a price for your products and services that all ows you a reasonable profit margin
IV. Compiling a Customer Profile
y
Just as a mission statement guides the operation of your company, a customer profile will guide your sales effort. Develop an overview of your target customers so that you and all of your employees are clear about whom you are selling to.
The importance of employees Employees must be regarded as the company s biggest asset. They are the primary builders of a profitable organisation the quality of the company s employees in turn; determi ne the profitable success of the business. o Without them, the company would cease to exist (i.e. the backbone of the work force) o Providing a safe, enjoyable working environment leads to happy workers which leads to a more positive working environment and business image o It takes a strong team to get the job done o They are the ones who develop the relationship between the customers i.e. Answering the phone, handling complaints, the ones trying to gain more customers
They may be overlooked, but they are the eventual success of the business.
Hiring Staff Many sources are available for a business looking to hire staff: o o o o o o Temporary/casual services Schools, universities or TAFE colleges Internal searches Public employment agencies for example, Employment National Private employment/recruitment agencies Advertisements in the media
Selecting a candidate for a position is important the decision maker must choose appropriate devices for screening applicants, until they find the most suitable person.
Application Form Candidate outlines information about themselves such as name, address, personal history, skills and experience. Written Tests These assess aptitude, intelligence or ability however they are not always reliable as the sole indicator of an applican t s suitability for a position. Performance Tests Stimulations of situations that occur in that particular workplace that require the applicant to address activities and situations that will be apart of the particular position. For example, the use of machinery or computer equipment. Interviews The most common device used in the selection process. It most cover a set of common questions that allows a consistent basis for selection. Background Checks Verifies information on the application form by contacting referees for information about the person s previous experience and performance.
The above selection process helps employers assess the need for promotions and pay rises and identifies needs in r elation to training and development.
All business plans should be presented in a professional manner because they may be read by potential or interested clients. Thus it is important that the plan should reflect the skills and abilities of the business owner. Executive Summary an overview of the entire business plan, and is written for an executive audience Description of the business, its location, owners, market, products and ownership structure The purpose of the plan A concise statement of the business goals Situational (SWOT) analysis an investigation of marketing opportunities and potential problems Operations Plan Description of the products Description of the production process Any future research and development plans Skills analysis personal needs and requirements Marketing Plan Analysis of existing competition Sales forecast, predicting market growth Outline of the marketing strategies for: Product Price Promotion Place (distribution) Finance Plan Breakdown of present financial requirements Financial forecasts for the next three to five years An accurate system of record keeping Financial control strategies
Marketing Marketing is a total system of interacting activities designed to plan, price, promote and distribute products to present and potential customers . y y y y Involves a wide range of activities Is directed at a wide range of both ideas and products Stresses the importance of satisfying exchanges- that is, something in return Is not limited to the activities of the business
Successful marketing uses the four Ps: y y y y Product: Brand name, packaging, positioning and warranties Price: List price, discounts, credit terms and payment period Promotion: Advertising, sales, promotion and publicity Place: Location of markets, warehousing, distribution
Accounting and Finance Accounting is a managerial and administrative tool that involves the recording of financial transactions so that a clear summary of what has happened to business money can be traced over time The main accounting reports and statements are: y y y y Balance Sheets: Annual or interim balance sheets Budgets: E.g. cash budgets, sales/income budgets, balance sheet budgets Cash Flow Reports: Statements of liquidity (e.g. monthly or quarterly cash flow statements) Revenue Statements: Also called profit and loss statements or income statements
Accounting provides information about the following: y y Profitability and return on investment Trends in earning, borrowing, sales and so on that together indicate the risks the business faces Financial status/position y y y Cash status/position Financing information Cash flows
This information will encourage; Good decision making, planning that is purposeful, confidence in the business s management and accountability
Finance refers to how a business funds its activities for instance where it gets the money to trade why it chooses to use certain lenders as well as the cost, risk and benefits of different types of borrowings y y Debt Finance is money borrowed from external lenders Equity Finance is money borrowed from internal lenders
Monitoring Monitoring is the process of measuring actual performance against planned performance. The process involves constantly asking two questions about business plan: 1. What does the business plan want to achieve 2. Are these objectives being achieved? Such monitoring involves two distinct steps: y y Establishing forecast performance standards Comparing actual performance with forecast performance that is, what are its goals?
A performance standard is a forecast level of performance against which actual performance can be compared. A performance standard can be for example: y y A 5% increase in monthly sales A production quota of 1000 units per week.
Evaluating Evaluating is the process of assessing whether the business has achieved stated goals. Once measurements have been collected in the monitoring process, the business owner can identify and investigate any discrepancies in comparison with the or iginal planned outcomes. If they aren t achieving desired results, they must work out where they are failing. If they are, they should examine what is making it succeed and re -use these strategies.
Calculate COGS, gross profit, net profit/net (loss)
Gross profit is the term given to the sales less cost of goods sold (COGS) or, mathematically. Gross Profit tells the business how much its mark -up is on the cost price of the goods it has sold. This is calculated by: Gross Profit = (Sales COGS)
Given that opening stock is the value of stock that the business has at the start of the financial year and that closing stock is the value of stock on hand at the end of the financial year. This is calculated by: COGS = (Opening stock + Purchases closing stock)
Net sales are the amount of revenue a business has earned from sales when the effects of sales returns are deducted. This is the way to calculate it in the revenue statement: Net Profit/Net (loss) = Expenses Total Revenue
Opening Stock is the value of stock that the business has at the start of the financial year. Closing Stock is the value of stock on hand at the end of the financial year.
The SWOT analysis SWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture. Strengths y y y Location Management Any aspect of business that adds value to your product or service
Weakness y y y Location Management Damaged Reputation
Opportunity y y A developing market such as the internet International Market
y Threat y y y
Mergers, joint ventures or strategic alliances
New Competitors in your market Price wars with competitors Taxation
The Importance of Business Planning The planning process is a series of actions to achieve an objective set by the business. The planning process acts as a link or bridge between the owner s ideas and the actual operation of the business; it is a way of turning dreams into reality. Any business with a plan has direction, which ultim ately saves money, time and effort. The business plan needs to analyse the whole business by examining all parts of the operation. As a result, each part of the business can function effectively and achieve its ob jectives, helping the overall success of the business.
The Importance of accurate financial and business forecasting using Financial forecasting is important for several reasons. First, it enables management to change operations at the right time in order to reap the greatest benefit. It also helps the company prevent losses by making the proper decisions based on relevant information. Organizations that can create high quality and accurate forecasts are able to "see what interventions are required to mee t their business performance targets" (Vadasz). Forecasting is also important when it comes to developing new products or new product lines. It helps management decide whether the product or product line will be successful. Forecasting prevents the company from spending time and money developing, manufacturing, and marketing a product that will fail. Accurate Financial 1. Good records help increase profitability by providing the financial data to help you operate more efficiently.
2. Accurate and complete records enable you to identify all your business assets, liabilities, income and expenses. This information can then be compared to
appropriate industry averages to help you determine what phases of your business operations are strong and which ones are weak.
3. Good records are necessary in order to prepare current financial statements like your Income Statement/ Profit and Loss Statement, your Cash-flow Projection, and you re Balance Sheet, all of which may be required by your banker a nd will be necessary if you ever seek additional funds.
4. Good records are also beneficial when the time comes to file taxes. If you have kept meticulous records, you will not over - or underpay, you will have documentation in the case of an Internal Revenue Service audit, and can help you to maximize your deductions.
The importance of Target Market Doing business without knowing what your target market is will prevent you from reaching your objectives: increased sales, market share or brand awareness. Choosing your Target Market: I. Identify Potential Customers There are two types of customer groups that you can target: individual consumers or other businesses. II. Conducting Market Research III. Choosing a Target Market
y y y
has easy access to your products and services, whether it is by visiting your store, or ordering by phone, fax, email or your Web site is not inundated with other products and services that are indistinguishable from yours is willing to pay a price for your products and services that all ows you a reasonable profit margin
IV. Compiling a Customer Profile
y
Just as a mission statement guides the operation of your company, a customer profile will guide your sales effort. Develop an overview of your target customers so that you and all of your employees are clear about whom you are selling to.
The importance of employees Employees must be regarded as the company s biggest asset. They are the primary builders of a profitable organisation the quality of the company s employees in turn; determi ne the profitable success of the business. o Without them, the company would cease to exist (i.e. the backbone of the work force) o Providing a safe, enjoyable working environment leads to happy workers which leads to a more positive working environment and business image o It takes a strong team to get the job done o They are the ones who develop the relationship between the customers i.e. Answering the phone, handling complaints, the ones trying to gain more customers
They may be overlooked, but they are the eventual success of the business.
Hiring Staff Many sources are available for a business looking to hire staff: o o o o o o Temporary/casual services Schools, universities or TAFE colleges Internal searches Public employment agencies for example, Employment National Private employment/recruitment agencies Advertisements in the media
Selecting a candidate for a position is important the decision maker must choose appropriate devices for screening applicants, until they find the most suitable person.
Application Form Candidate outlines information about themselves such as name, address, personal history, skills and experience. Written Tests These assess aptitude, intelligence or ability however they are not always reliable as the sole indicator of an applican t s suitability for a position. Performance Tests Stimulations of situations that occur in that particular workplace that require the applicant to address activities and situations that will be apart of the particular position. For example, the use of machinery or computer equipment. Interviews The most common device used in the selection process. It most cover a set of common questions that allows a consistent basis for selection. Background Checks Verifies information on the application form by contacting referees for information about the person s previous experience and performance.
The above selection process helps employers assess the need for promotions and pay rises and identifies needs in r elation to training and development.
