Somalilandsun – Previously in “Entrepreneurship: The Business Plan – Part 1″ we took a look at Business Plan: Definition, Purpose, Format, Executive Summary, Company Description, Market and Market Strategy. Today, our Part 2 is going to look at: Operations, Project Requirements, Financial Statements, and Appendices and Exhibits.
Operations or Operating Details
Goals & Objectives
• What are your overall company goals and financial objectives? What do you want to achieve? These should be identified in measurable terms.
Management & Personnel
Describe the organizational structure of your company. Who are the key people and what are their positions and responsibilities?
Identify the owners and management team. Who they are? What strengths do they bring to the business including experience and expertise?
What are the staffing requirements? Include: training, compensation, health and safety issues plus operating policies.
Describe relevant legal issues including municipal and other licenses, constraining laws, environmental concerns and liability issues.
Business Contacts: List business contacts including: suppliers, professional advisors including your accountant, lawyer and banker, etc.
Manufacturing Information: Include the manufacturing process if applicable.
Hours of Operation: Specify your hours of operation.
Inventory Control: What are your methods for controlling inventory or stock?
This is where you are required to list what you need in order to get started and how much each item costs. You should have a clear idea of what is needed and should include both the large and smaller items.
Capital requirements are larger things that you need to start and operate your business such as land, building, vehicles, tools, machinery, equipment, furnishings, etc.
Start-up Costs & Working Capital
Start-up costs are smaller in nature and include: initial advertising, inspections, fees, deposits, building renovations, printing, promotions, grand opening, office supplies, professional fees and licenses.
An existing business should provide historical statements. Include Income Statements and Balance Sheets for the past three years.
New businesses must estimate sales forecasts by month for the first year and estimate second and third year annual sales. Be sure to include the rationale or assumptions behind the sales forecasts.
Complete a 12 month cash flow forecast statement for the first year, done month by month.
• Sources and uses of funds. How much money do you need to get started? What will you use it for? Proposed sources of financing. Where do you plan on getting your funding from?
• Break even analysis is the point at which you have paid for all your expenses and costs and have started to make a profit.
• Your personal statement of net worth.
• Statement of forecast assumptions. This will state the assumptions you have made to achieve your sales levels.
Financial Statements Overview
NB: It is important that you complete an accurate market analysis of your customer, competition and industry conditions in order to complete accurate and useful projections.
The two main financial statements are the Balance Sheet and the Income Statement.
The Balance Sheet
The balance sheet presents the financial picture of the business at a specified point of time on the day it was written. The income statement is different; it is a measure of activity over time. Everything that is included on the financial statements must be valued in dollars and cents. The balance sheet will show the business’ assets, liabilities and equity.
• Assets – include everything that you have, including: cash, inventory, machinery and buildings. Assets have value and this value must be quantifiable in order to be listed on the balance sheet.
• Liabilities – how much the business owes and are obligations of the business. Liabilities include things like accounts payable and bank loans.
• Equity – what the business is worth. Equity includes the original amount of money that the owners have put into the business and the retained earnings which is the earning that the owners have kept in the business.
NB. The Balance Sheet must always ‘balance’. Assets = Liabilities + Owners Equity
The Income Statement
The Income Statement shows the profitability of a business. It provides the measure of business activity over time. This time period is specified on the Income Statement (for example, one month or one year).
The Income Statement will show the activity over time including what sales are, costs and expenses and income. Income occurs if sales exceed expenses (and that is what you want).
Cash Flow Statement
This statement tracks the movement of cash through the business over time. The statement shows the cash that is on hand at the beginning of the period plus the cash that is received during that period, minus the cash spent results in the cash on hand at the end of the period.
If the business is paying out more in cash than it is receiving, it risks running out of cash and not being able to pay the bills when due.
NB: It’s usually better for you to overestimate your expenses and underestimate your sales; this may help you to create a ‘buffer zone’ to eliminate the cash crisis.
Appendices & Exhibits
This is the appropriate place for you to include any additional information that you feel would be useful to your readers, but need not be included in the body of the plan. This information is best placed here so it will not add ‘bulk’ to the plan. Information included here will add more detail to support the information in the plan. This information will be kept separate from the other sections of the plan and the reader can use it on an as needed basis.
The information that would be included depends on the type of business. The following examples are some of the information that would be included here:
• Resumes or CVs of key managers or personnel
• Market study or survey information
• Manufacturers’ product documentation, pamphlets, product promotional materials
• Credible newspaper articles and/or industry journal articles
• Partnership agreements etc.
Glossary of Key Terms
Break Even Point: This analysis will determine the level of sales that a business has to achieve before it begins generating a profit. The formula is as follows:
Break Even Point = Total Fixed Costs (those that never change)
Gross Margin: Gross Margin is the amount that is left over from sales after product manufacturing costs.
Gross Margin = Gross Profit (selling price – cost of goods sold)
Selling Price: Costs of Goods Sold are the product manufacturing costs. These are variable costs.
Equity: Equity is capital invested in the business by its owners. You obtain equity capital in the first instance by investing your own money in the business. You can increase the equity capital in your business by investing more of your own money, by taking other people into the business who are willing to risk their money in it, or by reinvesting the profits which the business earns.
Fixed Cost: A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses that have to be paid by a business, independent of any business activity. It is one of the two components of the total cost of a good or service, along with variable cost.
Forecasting: The art of estimating future demand by anticipating what buyers are likely to do under a given set of conditions
Market: A set of all actual and potential buyers of a product or service. Consists of all the potential customers sharing a particular need or want who might be willing and able to engage in exchange to satisfy that need or want.
Marketing: Is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods and services to create exchanges that satisfy individual and organization objectives.
Marketing Mix: The set of controllable tactical marketing tools – product, price, place, package, position and promotion – that the business blends to produce the response it wants in the target market.
Market Segmentation: Dividing a market into distinct groups of buyers with different needs, characteristics, or behavior which might require separate products or marketing mixes.
Marketing Penetration: A strategy for company growth by increasing sales of current products to current market segments without changing the product in any way.
Market Positioning: Arrange for a product to occupy a clear, distinctive, and desirable place relative to competing products in the minds of the target consumers. Formulate competitive positioning for a product and detailed marketing mix.
Marketing Strategy: Business hopes to achieve its marketing objectives.
Target Market: A set of buyers sharing common needs or characteristics that the company decides to serve.
Working Capital: This refers to your present or anticipated operating cash requirements. For example: your cash on hand or at the bank to meet costs while waiting for your receivables. Working capital requirements are often covered by operating loans or credit lines from banks.
Variable Cost: A business expense that varies with production output. Variable costs are those costs that vary depending on a business’ production volume; they rise as production increases and fall as production decreases. Variable costs differ from fixed costs such as rent, advertising, and office supplies, which tend to remain the same regardless of production output. Fixed costs and variable costs comprise total cost.
The author Imran Jumah is a Lecturer, at ADMAS University College – Hargeisa…
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