Plan to Succeed a business planning guide Small Business Victoria The business plan INTRODUCTION 4 THE BUSINESS PLAN 1. Primary objectives 5 2. Business plan summary 5 3. Business description 6 4. SWOT analysis: Strengths, Weaknesses, Opportunities and Threats 6-7 5. Market analysis 7 6. Marketing strategies 8 7. Sales and production targets linked to working capital 8 8. Business growth and development 9 9. Production facilities 9 10. Business structure 10 11. Financial requirements 10-13 12. Costings of products, hourly rates and overheads 13-14 13. Break-even analysis 14 14. Return on investment 14 15. Management and ownership 15-16 16. Quality certification 16 17. Administration 17 18. Supporting documentation 17 Attachments 1. Canterbury Renovations projected profit or loss – first year 18 2. Canterbury Renovations projected cash flow – first year 19 3. Canterbury Renovations projected profit or loss – second year 20 4. Canterbury Renovations projected cash flow – second year 21 5. Statement of financial position 22 Small Business Victoria 3 Introduction What is a business plan? A comprehensive guide to the process of preparing a business plan. A business plan is essential when applying for bank loans or a lease on business premises. The following information will assist you through the process of researching and preparing a business plan. Always seek sound professional advice (legal, accounting and commercial) before making important business decisions. Business people who do their own planning not only save a lot of money, they learn a lot about how to build a successful business. They also have a greater sense of ownership of their business plan and are more likely to utilise it as an ongoing part of good business management. However, preparing a business plan for the first time is not as easy as it seems. Although there are many information products available and consultants offering assistance with business planning, this booklet is designed specifically to assist new and existing small business operators plan their businesses with minimal external assistance. This booklet sets out the key features of a business plan and provides prompts and examples of how a business plan is written. The sample case study used in this booklet is a new business in kitchen, bathroom and laundry renovations to be run by a husband and wife team. The business will require: • existing knowledge of building technology and the building industry • determination to build a small business and learn about business management, and • adequate capital. The basic operations will be obtaining contracts by competitive tendering, the purchase of raw materials and equipment, the manufacturing of fittings, their installation and finishing. 4 Plan to Succeed A business plan is simply the strategy to achieve the objectives of the proprietors of the business. A business plan prepared for a bank or investors will need to include evidence of the market potential supporting the projected sales of the business. Preferably a business plan takes the form of a written document. It plainly sets out all the important facts about the business, its history (if relevant), the current position, the objectives and the business activities to be undertaken. Why do a business plan? It is becoming increasingly tough to survive in business. It is not good enough to have a good product or service. Business people, whether they be panel beaters, manufacturers or doctors must also be good managers. Successful business managers have clear objectives, produce good products or services, understand the market, manage their money properly and are good employers. Accordingly, the primary reason to formulate a business plan is to address all the issues that make a successful business. In the case of a new business, a business plan will assist in determining the feasibility of the proposal. For an existing business, comparing actual outcomes against projections will assist in refining the business plan and improving performance. But there are other important reasons to formulate a business plan. For a start, no bank will lend money to a business unless it has a business plan that demonstrates how the business proposes to service the interest and repay the loan. The involvement of stakeholders such as staff, family and partners in the formulation of a business plan is also a good way of securing their commitment to the business. Important note The sample business plan in this booklet about how to write a business plan is provided as a guide only. The statistical and financial information in this booklet are assumptions for the case study and should not be used for an actual business plan. Intending and existing business people must undertake their own research and use reliable data for the preparation of their business plans. The business plan Following are the usual section headings for a business plan The text of a sample business plan for Canterbury Renovations is bordered like this. Not every section has to be addressed in the same degree of detail. For example, a person buying a well established business might have to pay much more attention to the valuation of the business than to the market analysis. Conversely, a new starter wanting to break into a competitive business such as road transport, building construction or the legal profession should pay particular attention to market research and marketing strategies. 1. Primary objectives The proprietors have agreed to establish a building business, initially specialising in domestic kitchen, bathroom and laundry renovations and progressing in two to three years to residential construction. The emphasis will be on high quality products and service, the reinvestment of profits in business growth and the development of a business identity separate from the proprietors. Their aim will be to complete every job on time and within budget. 2. Business plan summary The concept The proprietors Frank and Julie Walter have a building background combined with considerable flair in interior design. Their proposal is to establish a new business providing kitchen, bathroom and laundry renovations for home owners. The product / service The business will supply and install domestic kitchen, bathroom and laundry equipment and fittings and carry out all associated building services. A free design and quotation service will also be provided. The products and services will be of high quality and include a wide range of built-in equipment such as ovens, microwaves, cooktops and dishwashers. Market analysis Market research carried out by the proprietors reveal increasing activity in home renovation by home owners who subcontract the more complex work to builders, especially in the inner suburbs. Many existing kitchen, bathroom and laundry renovators do not have a good reputation, so the proprietors believe their competitive advantage will be the provision of top quality products and services, access to speciality items and innovative designs. Marketing strategy The proprietors believe the best marketing strategy is a combination of a good network of contacts, a reputation for quality and reliability and personal referrals. This will be complemented by brochures, direct contact with home buyers in selected areas and a small display in a local rented shop. Financial data The initial funding will be $85,000. The proprietors will provide the initial $40,000, and will arrange an overdraft of $45,000 secured by a mortgage over their home. They expect to achieve a turnover of $300,000 in the first year yielding a gross profit of $50,000 after Frank’s salary has been paid. This will be sufficient to pay overhead expenses such as rent, interest and advertising. See Attachment 1. Small Business Victoria 5 The business plan 3. Business description Provide a brief description of the core activities of the business. In the case of an existing business, state its history, current position and future business activities. For a new business, outline the proposal, where the proprietors want the business to be in two to five years and how they will achieve their objectives. The business will be called ‘Canterbury Renovations’. The name has already been registered as a business name and an application has been lodged for a trademark. The core activity will be the renovation of kitchens, bathrooms and laundries. The business will provide a complete service ranging from design, quotation and installation to after sales maintenance and a seven year guarantee over the workmanship. Although the proprietors intend to concentrate on their core business, they will also accept shop fitting and general renovations if opportunities arise. 4. SWOT analysis: Strengths, Weaknesses, Opportunities and Threats A SWOT analysis highlights strengths and weaknesses within the business and identifies opportunities and threats in the external business environment. This will enable the proprietors to make the most of their competitive advantages, take steps to overcome their shortcomings, exploit opportunities in the marketplace and minimise their exposure to external threats. Provide a list of the strengths, weaknesses, opportunities and threats. Strengths • Technical competence of the proprietors • Dedicated staff • Complete agreement by the proprietors on their objectives The proprietors will establish a small showroom in the inner eastern suburbs. There are a number of premises available at a modest rental. These premises will also be used for the storage of materials and equipment. One such shop is available for rent and outgoings of $14,000 per annum. Some manufacturing work will take place at the proprietors’ residence. This has been approved by the council as a home occupation. • Financial resources The proprietors’ objective is to achieve an operating turnover of $300,000 by the end of the first year. In the second year, the proprietors expect the annual turn over to be $450,000, with the employment of two more staff. This growth will result from the marketing strategy and reputation for the provision of excellent products and services. The manufacturing works may have to be relocated to an industrial site and additional finance will be required in due course. • Lack of management skills • A good network of contacts for potential clients, suppliers and tradespersons • Ability to respond to the needs of the market • Business located within the target market Weaknesses • Size of premises • No track record in business • No plan for management succession • Inefficient equipment • Lack of research and development facilities • Limited security with which to raise finance for future growth and development • The business is principally dependent on one person during the formative stages Opportunities • Rapidly growing market because of a preference by home owners to renovate rather than shift • Poor reputation of many existing renovation businesses and building tradespersons • Large number of older but valuable homes within the target market are a • Availability of casual staff and tradespersons • Availability of display and manufacturing premises within the area • High disposable income within the target market • Expansion of the business into other areas and/or franchising 6 Plan to Succeed The business plan Threats • Poor reputation of the industry regarding quality and reliability • Economic downturns • Existing and future competitors within the industry • Increasing cost of materials, equipment and subcontract tradespersons • Difficulties of getting good staff and reliable subcontractors • Possible government regulation • Geographically diverse market 5. Market analysis It is essential to show that there is a sound customer base for the business. Provide a description of the market in terms of the following: • Who are the customers? • What is their geographical location? • How many customers are there in this location? • What is their purchasing power? • How are they accessed? • What is the stability of the market and expected growth (or decline)? • What are the seasonal trends? • What influences the customers? • What is the price sensitivity? • What is the competitive edge? Market analysis The proprietors have completed considerable research of the market over recent years. Statistical information has been obtained from the Australian Bureau of Statistics and local council records. In addition, extensive personal networking by the proprietors has provided the information to build a profile of the market for the business. According to the Australian Bureau of Statistics, building renovation is the most stable sector of the domestic construction industry. Many home owners who want to improve their living environment choose to renovate rather than move. Relocation costs – such as legal and estate agents’ fees, mortgage costs, lodging fees, and stamp duty are significant deterrents to moving. Saving these costs makes a sizeable contribution to the cost of renovating an existing home. A survey of councils in the inner eastern municipalities of Stonnington, Boroondara and Whitehorse revealed that in the 1995/96 financial year approximately 2,500 permits were issued for home renovations. Approximately half were issued to home owners. About a third of owners/renovators were people who had recently purchased a home with a preference for locality rather than condition. Most owners/renovators in the areas surveyed were in the middle to high income bracket with at least two sources of income for each household. There was usually higher than average disposable income, which was spent improving their quality of life. There was a definite preference for home renovation because of immediate and enduring financial benefits. The proprietors have surveyed the existing competitors and identified their weaknesses as follows: • Large overheads which mean higher prices • Most are not located close to the target market • Usually subcontract their manufacturing to external contractors • Few have strong personal contacts within the target market Small Business Victoria 7 The business plan 6. Marketing strategies A good marketing strategy is vital to the success of a business. Customers must know about the product/s and service/s of the business and be encouraged to buy them. Describe the strategies that will be used to achieve sales. The following points should be considered: The competitive edge The competitive edge will be superior service, customers dealing with the proprietors (not employed sales staff), free design and quotation, quality of the product, after-sales service, seven years’ guarantee, the location of the business, and the range of materials, finishes and equipment available. The proprietors will ensure these benefits are emphasised through promotional literature and word-of-mouth referrals. First-class customer service Canterbury Renovations will provide a first-class customer service in terms of: • Responding to enquiries • Hours of service to meet customer needs, within the limited geographical location • Providing clear and comprehensive job specifications and fixed prices • Starting and finishing the jobs on time and to budget • Minimal disruption to the household during installation • Guarantee of quality product • Site clean-up on job completion • After-sales service Most businesses are underpinned by cash. Usually, materials, stock, labour, and subcontract work will have to be paid for before the customers pay for the work, equipment and services they receive. Therefore the more sales that are achieved the more money will be required to finance the production. The money required to pay the bills as they fall due is called working capital. Promotional literature Promotional literature will be produced and distributed as follows: Working capital requirements are derived from the projected cash flow. The cash flow is based on a monthly schedule of ‘money in’ less ‘money out’. • The literature will illustrate styles, ideal dimensions, and provide classic names However, another way of calculating working capital requirements is illustrated as follows: • It will include information about the proprietors to create a ‘personal feel’ about the business • It will be distributed in the area to all home buyers, applicants for permits for renovations and respondents to local advertising The advertising and promotional budget in the first year will be $12,000. Means of advertising • Selective and specialised market promotion and local print media and direct marketing to home buyers/renovators • ‘Word of mouth’, which has proved to be one of the best forms of promotion and, as a result of the ‘close knit’ community the proprietors work in, they believe this will be the most effective form of advertising Pricing policy The proprietors believe that because of the high disposable income in the location they intend to target, clients will not be particularly price sensitive, rating quality of product and service more important. Accordingly, the business will base its competitive advantage on quality rather than cheap prices. Location and visibility of the business The business will be located in the geographical centre of the market, with its display unit and manufacturing facilities no further than 10 kilometres from the farthest boundary of the market. Only one similar business is located close to the market. Otherwise all competitors are located in outer suburban areas which is inconvenient to clients. 8 7. Sales and production targets linked to working capital Plan to Succeed Canterbury Renovations will, during the first year, achieve the following levels of sales and production in average figures: 25 renovation jobs for $12,000 each. Total sales – $300,000. Each job will last four weeks (one week production and three weeks installation) i.e. 25 x 4 = 100 weeks production and installation time ÷ 48 effective working weeks per year = approximately two jobs concurrent. Due to the fluctuating nature of the industry it is possible that there could be between zero and four jobs concurrent. If four jobs are concurrent the financial requirements would be the total contract prices less deposits received. four jobs x $12,000 = $48,000 – deposits of 15% ($7,200 ) = $40,800. Therefore the maximum working capital required will be about $41,000 which is predicted to occur in April according to the cash flow. See Attachment 2. The business plan 8. Business growth and development 9. Production facilities Business growth and development means increasing sales, optimising the use of the business infrastructure, increasing buying power, improving efficiencies through internal specialisation and continually improving the product and service. Businesses that do not have a strategy for growth and development will soon be overtaken by competitors. Describe how the business will be developed. Provide an outline of how the products and services will be produced: • The skills, qualifications and experience of the proprietors • The equipment required • Sources of raw materials • Subcontracting • Technical requirements The proprietors will keep abreast of new products, technology and production methods. They will continue to liaise with local and overseas suppliers. Marketing techniques will be monitored. Those that are successful will be expanded and the others will be abandoned. The proprietors are especially conscious of the need to continually monitor the financial position of the business. Sales, profitability and especially cashflow will be compared against projections on a monthly basis. The costs of each job will also be compared with the estimates to ensure profitability is being achieved and the estimates are accurate. The business will not be profitable in the first year. But expected profits in subsequent years will be applied to business development by the expansion of production facilities, expenditure on promotional activities and reserving cash to pay for more materials, labour and subcontract work associated with a higher level of business activity. The proprietors will analyse all unsuccessful quotations. Prospective customers will be asked to provide comment on why they rejected the quotations, and information gained this way will be used in monitoring the effectiveness of the pricing and marketing strategy. • Personnel The proprietors will produce the units partly with their own resources and partly with sub-contractors. Initially, the installation will be carried out by Frank, with electrical and tiling work subcontracted to experienced tradespersons. As the workload increases more installation work will be subcontracted. Frank has the carpentry and plumbing skills to produce the basic units, but work such as laminating veneers will be outsourced to specialist suppliers. The proprietors have a large garage at their premises and woodworking equipment – such as a router, a docking saw, planer, benches, jigs – and a large range of hand tools. They also own a four wheel drive vehicle and a trailer. The proprietors have satisfied the council that the production activities will be a home-based occupation and no planning permit will be required, provided that noisy machinery will only be used between 9:00am and 5:00pm Mondays to Fridays. The proprietors have obtained design details and technical specifications for fittings such as stoves, hot plates, ovens, sinks, dishwashers, hoods, baths, basins and toilets. They have also established contact with suppliers of innovative kitchen and laundry products. The proprietors envisage that after the first year of business, the production facilities will be relocated to a small factory close to the market. The showroom will also be moved to these premises. The factory will be an extra expense to the business, but can be afforded with the higher level of business and profitability in the second year of business. Small Business Victoria 9 The business plan 10. Business structure 11. Financial requirements Business proprietors may choose to operate their businesses under one of a number of structures with different options for identifying the business and its products and services. These include: Business establishment costs • Business structures – Sole trader – Partnership – Limited partnership – Proprietary company • Identifying features – Business names – Company names – Trademarks – Designs – Patents Provide a clear description of the proposed ownership structure and why it was chosen. It is vital to assess total funds required to set up a business and cover its operating costs until it becomes profitable. At first glance, it may appear that all that is required is stock, basic fixtures and perhaps the first month’s rent. However, there are many other costs and expenses in starting a business and the items on the following lists should be considered. Note: all items in the following tables should include GST as applicable. Pre-business costs • Accommodation • Accounting fees • Business planning • Consultants The business will be established as a proprietary company. The company will be acquired as a shelf company for a cost of $1,000 plus $200 to change the company name to ‘F & J Walter Nominees Pty Ltd’. The name ‘Canterbury Renovations’ has been registered as a business name in the names of the proprietors but will be transferred to the company after incorporation. The proprietors have also applied for a trademark to secure the name of their product and service. • Entertainment • Legal fees • Market research $2,600 • Publications • Samples • Telephone, fax, letters, photocopying • Translations • Travel • Valuation fees A company structure was chosen over a partnership or sole trader because a company would provide the best possible protection of the proprietors’ personal assets in the event of a failure of the business. An allowance has been made for the higher compliance costs in the projected operational costs. It has also been recognised that the proprietors/operators will be deemed employees, which will involve statutory responsibilities, such as WorkCover, superannuation payments and long service leave. 10 Plan to Succeed Add up pre-business costs here: $2,600 The business plan Initial costs • Lease – Legal costs – Stamp duty – Rent in advance – Bond • Electricity, gas and phone – Connections – Security deposits • Opening stock • Insurance premiums – Property damage – Public liability – Vehicle – Theft – Personal disability – Professional indemnity Capital costs $2,500 $500 $4,000 $800 • Printing and artwork • Wages • Credit card establishment fee • Initial promotion • Promotional cost • Loan establishment cost • Stationery and office supplies • Computer software – Installation – Training • $1,600 $1,200 • $2,800 Office equipment – Desks – Chairs – Safe – Computers – Fax, telephone system • Vehicles $4,000 • Plant and machinery – Purchase price/deposit – Delivery – Repairs – Installation/commissioning $2,000 • Building costs – Shop front – Partitions – Electrical wiring and fittings – Floor coverings – Toilets, plumbing and drainage – Painting – Signs • Display materials $600 $1,500 • Purchase price of business Franchise fee • Statutory charges – Licences – Permits – Registrations Training shop fittings – Counters – Racks, shelving – Storage – Decorations • Security system • Subscriptions for publications • Association membership fees Add up initial costs here: • Business structure – Registration – Professional fees $9,400 $600 • Trademark/design/patents – Registrations – Patent attorney fees – Reference materials • Land Add up capital costs here: $12,700 Small Business Victoria 11 The business plan Projected profit/loss Note: all items in the following tables should include GST as applicable. Possible direct/renovation costs • Subcontractors $103,300 • Materials $84,300 • Wages $50,400 • WorkCover • Group tax/payroll tax $12,000 • Commissions • Royalties $250,000 $14,400 • Outgoings $1,600 • Interests $2,250 • Motor vehicle expenses $9,600 • Advertising and promotion $12,000 • Bank charges • Hire purchase payments • Lease payments • Insurance premiums • Accounting fees • PAYG TAX • Legal fees $10,800 • Staff amenities • Postage • Travel and accommodation See Attachment 1. Projected cashflow Irrespective of the profitability of a business it is necessary to ensure that the business does not run out of cash. This can happen because, for example: when too much stock or materials are purchased; clients do not pay when they should; the owners/proprietors draw too much; funds have not been set aside to pay tax or too much has been borrowed to set up the business; and there is insufficient profit on hand to make the capital repayments. The projected cashflow highlights surpluses and shortfalls of cash and is a vital part of good financial management of a business. It is calculated as follows: Equals surplus/shortfall of cash See Attachment 2. Add up overhead expenses for the first year here: $50,650 Add pre-business and initial costs $12,000 Total overheads for the first year $62,650 Plan to Succeed 2. Use actual receipts and expenditure of money to calculate profit/ loss. This is simpler than using earnings and commitments, but some expenses such as annual insurance premiums should be amortised (or spread equally) over the whole year. Less cash payments (renovating costs and overhead expenses, set up costs, capital repayments, taxation, etc.) • Entertainment 12 1. The business structure will be a proprietary company so the profit/ loss projections will include wages for working owners/proprietors. Cash receipts from all business sources (revenue, loans, sale of equipment, etc.) • Electricity and gas • Subscriptions Less overhead expenses (exploratory costs, initial costs, rent, finance charges, marketing costs, vehicle costs, wages for management and administration, etc.) Notes: Possible overhead expenses for the first year • Rent Less renovating costs (subcontractors, materials, wages directly related to renovations, etc.) Equals net profit/loss • Freight Add up renovation/direct costs for the first year here: Revenue from all sources within the business (renovations, sale of trading stock, interest earned, etc.) Equals gross profit/loss • Maintenance and repairs • Waste disposal Calculate the expected profit/loss for the next twelve month period on a quarterly basis for an existing business or on a monthly basis for a new business as follows: The business plan Initial funding of the business The projected cashflow will show how much money is required to support the business during the establishment phase. What is the source of this money? 12. Costing of products, hourly rates and overheads Show how the prices of the products and services will be established The owners have $20,000 of their own to invest in the business and have been offered an interest free loan of $20,000 from Frank’s parents with no specific commitment for repayment. But the closing balances in the projected cash flow shows that some $41,000 of additional funds will be required over the first year of the business. The owners have had preliminary discussions with their bank manager and subject to the provision of a properly documented business plan and the provision of a mortgage over their home, they will be provided with an overdraft of $45,000. The business will be involved in the following: An overdraft was agreed as the most suitable arrangement for the first year as the financial requirements will vary substantially from month to month and there will be no profits with which to repay capital. Overhead expenses After the first year trading levels will be more predictable and the finance arrangements will be reviewed. • Purchase and supply of equipment • Purchase and conversion of raw or partially finished materials • Provision of manufacturing and on-site labour • Provision of subcontract work The following assumptions are made in preparing quotations: Direct costs $368,500 Business profit $73,150 $8,350 Total $81,500 Annual business turnover in the second year +$ 81,500 $450,000 Therefore to cover profit overheads, the average mark-up on all direct costs, equipment, materials, labour and subcontractors’ costs will be 25%. Accordingly, quotations will be prepared on the following basis (see below) for a typical job of e.g. $10,000: Note: all items should include GST as applicable. Item Equipment Material Labour Subcontractors Total Direct cost $ 2,500 1,500 2,300 1,700 $8,000 Mark-up % 15 35 30 25 (ave) 25% Mark-up $ 375 525 690 425 (approx.) $2,000 Small Business Victoria 13 The business plan Note: all items should include GST as applicable. Labour rates will be calculated as follows: Costs $ Hourly rate (according to award or workplace agreement) 18.00 Add on costs, e.g. WorkCover 5% 0.90 Medical costs, e.g. 1,700 Superannuation $8,000 Payroll tax (N/A) Sick pay allowance, e.g. 2.00 Annual leave allowance ($18x52÷48) -$18 1.50 Tools allowance 1.00 Total 25.48 Allowance for non-productive time, e.g. industrial action, maintenance, travelling, tool maintenance, training injuries, etc., e.g. 10% + 2.55 Total 28.03 Therefore, the hourly rate for estimating work will be $28.00 plus 25 per cent mark up = $36.50 per hour. 13. Break-even analysis 14. Return on investment A break-even analysis is a calculation to show the level of sales or business required to pay for all the overheads of the business and at least come out even. The break-even point for Canterbury Renovations is calculated as follows: The proprietors’ money tied up in a business is an investment. If it was not tied up in the business it would, presumably, be earning interest in some other form of investment. Will the business provide a return on the investment at least equal to fixed deposits in banks or blue chip shares? The average mark-up on direct/renovation costs is 25%. e.g. a $10,000 job will have a direct cost of $8,000. Therefore the gross profit will be $2,000, i.e. 20% of the value of the job. The projected overheads for the business in the first year will be $62,650. To break even the business would have to achieve sales of which 80% pays for the direct/renovation costs and 20% pays for the overheads of $62,650. If sales x 20% = $62,650, then the sales to reach break-even would be $62,650÷20% or multiplied by 5, i.e. $313,250. Therefore, the break-even point of sales in the first year will be $313,250. This will not be achieved in the first year. However, in the second year the profit margin of 18% of the projected sales of $450, 000 (i.e. $81,500 gross profit) will cover the overheads of about $73,150 and produce a net profit of $8,350. 14 Plan to Succeed The projected net loss in the first year means the proprietors will not receive any return on the money they invested in Canterbury Renovations. However, the expected profit in the second year will be $8,350 (after proprietors’ salaries which are part of costs and expenses). Therefore the return of $8,350 on the proprietors’ original investment of $40,000 is about 21%. Whilst better than the current rate of return on more secure investments the proprietors are conscious of the risks and insecurity of small business, particularly in the building industry and aim to increase the return on investment to 25% in future years. This is particularly important as the proprietors plan to retain profits to partly finance future growth of the business and so increase their investment in the business. The business plan 15. Management and ownership Management succession Describe the background of the key persons in the business and what other staff or contractors will be required. Also briefly state the roles of the key persons, the methods of remuneration, methods of recruitment (where applicable) and training programs. Describe the arrangement that will be made for the business to continue in the event of disability of the proprietors. The proprietors will be Frank and Julie Walter. Frank has a trade certificate in plumbing and is a registered builder. He has been employed as a project manager by a leading home builder for ten years and is thoroughly familiar with building technology. In the last two years, Frank also worked part time for the same firm as a sales consultant developing good customer relations skills. Julie studied home economics at RMIT and is now a teacher at a private school in the inner eastern suburbs. Both Frank and Julie are enthusiastic home renovators, with particular experience in classical and period style homes. Julie will maintain her job for the next six months but will work part time for the business mainly in administration and marketing. Julie has an extensive network of acquaintances through her employment and membership of a number of associations. Frank and Julie have one infant child, but regular childcare is provided by their extended families. It is not anticipated that the business will employ any staff other than the proprietors within the first year. During that year, most of the work will be subcontracted to reliable tradespeople whom Frank knows through his employment in the industry. Frank will however, personally undertake the plumbing and closely supervise the other work. It is expected that after the first year, the workflow will have increased and the employment of a carpenter/ joiner and a sales assistant/administrator for the showroom will be required. Employees will receive remuneration in accordance with the relevant award or the minimum employment conditions prescribed by the Workplace Relations Act 1996. In addition, they will be entitled to participate in an incentive scheme based on personal performance and business profitability. The proprietors agree that within the first six months, it would be impractical for Julie to continue the business in the event of Frank’s disability. Frank’s insurance would cover the nonrecoverable investments in the business (stock, advertising, tools, etc.), repayment of the loan and subcontracting of current contracts (approximately $50,000). Julie also has a strong personal commitment to ensure that the business will become successful and has decided that when she resigns from her present position after the first year she would continue with the business in the event of Frank’s disability. His insurance would cover the re-financing of the business to subcontract the manufacturing, and hire suitable tradespeople for the installation. Having been closely involved with the design and technical aspects of renovating their own homes over a period of eight years, Julie feels confident that she can take over a management role. Key person insurance Ascertain the financial impact on the business, if one of the key people could not continue to provide their services because of disability. Both Frank and Julie will be insured to cover the loss of their contribution to the business in the event of disability. In the first year, the business and the family will be substantially dependent on Frank and accordingly, his continuing good health will be insured for $250,000. Julie’s role, albeit a supportive one, is equally important and her continuing contribution will be insured for the same amount as Frank’s . Small Business Victoria 15 The business plan Personnel management The proprietors and staff are the most important resource of a small business and good arrangements between the business and its personnel is necessary to ensure the success of a business, especially in the long term. The following matters need to be considered: • Arrangements between the proprietors The proprietors have reached agreement on their principal objectives and their respective roles which are set out elsewhere in this Business Plan. They agree to be bound by this agreement for the first year of the business. Any variation to this must be by mutual consent and be in writing. • Involvement of family members. The proprietors’ extended family have agreed to assist by providing childcare as and when required. If the business is retained long enough, the proprietors’ children will be encouraged to take an active role in the business. • Assessment of staff and subcontractors’ performance. The performance of the staff, including the proprietors and subcontractors, in relation to key results such as quality of workmanship and customer service, effective use of time and accuracy will be reviewed every three months in the first year of the business. • Contribution of staff to the development and implementation of business plans. The staff will be consulted regularly in relation to the business planning process, particularly in the areas of production, customer service and marketing. This will be both ongoing and in formal meetings every three months in the first year of the business. • Training programme. Skills maintenance and development are essential in building a bigger and better business. The priority areas for staff training will be: - Building and production techniques - New products: fittings, materials, equipment, etc. - New machinery: outputs, operation, efficiency, etc. - Marketing skills - Market analysis - Selling - Customer service - Financial skills - Analysing financial statements - Estimating and pricing - Preparing cashflow projections - Comparing actual expenditure - Bookkeeping 16 Plan to Succeed The proprietors plan to develop their basic business skills initially by both attending the eight-week course ‘Planning and Starting a Small Business’ at the Box Hill College of TAFE. The proprietors will join the Master Builders Association and attend relevant industry courses. The proprietors will also attend trade shows and subscribe to business and trade magazines. As the business and staff develop deficiencies in certain areas, these will be identified and addressed through a formal training strategy. 16. Quality certification Will quality assurance certification be undertaken? If so, for what purpose, how will it be undertaken and at what cost in time and money? Canterbury Renovations, as a new business, will be developed in accordance with a comprehensive business plan. As there is no anticipated requirement by clients in the immediate future, quality assurance certification will not be undertaken at this stage. However, this aspect will be kept under review as the business develops. The business plan 17. Administration 18. Supporting Documentation Management information systems You should provide copies of applicable documents which support the business plan: The business will maintain proper and sufficient business records to show the financial position of the business on a monthly basis. Financial records will show overall profitability and cash flow and compared with projected profit/loss and cash flow statements of this Business Plan. Records will also be kept for each job to show its progress and cost in labour, materials, and subcontractors and compared with the estimate for that job. • References, qualifications • Licences and permits • Business or company incorporation certificate • Partnership agreement • Research data, promotional literature • Product drawings, designs or photos, locality map • Projected profit/loss - first year (see example - Attachment 1) The following specific records will be kept: • Cash book • Receipt book • Invoices, received and sent • Bank deposits and statements • Petty cash expenditure • Wage, WorkCover, superannuation, long service leave records, and employee details • Projected cashflow - first year (see example - Attachment 2) • Projected profit/loss - second year (see example - Attachment 3) • Projected cashflow - second year (see example - Attachment 4) • Statement of financial position (see example - Attachment 5) • Capital assets register • Materials purchased and allocated to each job or temporarily as floating stock • Contact details of all enquirers, existing clients, suppliers and subcontractors • Individual job records showing progress • Job estimates Small Business Victoria 17 18 Plan to Succeed 5,200 Total renovating costs Net profit Total overhead expenses (23,100) 17,900 9,400 (advert./prom.exclud) Initial costs 900 Other overhead expenses 2,600 3,000 Advertising & promotion Exploratory costs 800 Motor vehicle expenses (4,620) 4,970 900 2,000 800 (2,250) 4,450 900 1,000 800 150 70 1,200 400 0 1,200 2,200 17,800 Bank Interest 1,200 350 14,650 1,000 4,200 5,600 7,000 20,000 20,000 Sep Outgoings Rent Less overhead expenses (5,200) 1,000 Misc renovating costs Gross profit 4,200 4,200 Renovation wages 1,000 4,200 Materials 15,000 15,000 5,250 0 0 Aug Subcontractors Less renovating costs Total revenue Other revenue Renovating revenue Revenue Jul 450 3,600 900 500 800 200 1,200 4,050 20,950 1,000 4,200 7,000 8,750 25,000 25,000 Oct Projected profit or loss – first year (excluding GST) Canterbury Renovations 2,270 3,630 900 500 800 230 1,200 5,900 24,100 1,000 4,200 8,400 10,500 30,000 30,000 Nov (5,810) 3,570 900 500 800 170 1,200 (2,240) 10,240 1,000 4,200 2,240 2,800 8,000 8,000 Dec (4,290) 3,530 900 500 800 130 1,200 (760) 12,760 1,000 4,200 3,360 4,200 12,000 12,000 Jan 360 5,540 900 2,000 800 240 400 1,200 5,900 24,100 1,000 4,200 8,400 10,500 30,000 30,000 Feb 5,880 3,720 900 500 800 320 1,200 9,600 30,400 1,000 4,200 11,200 14,000 40,000 40,000 Mar 8,760 4,540 900 500 800 340 800 1,200 13,300 36,700 1,000 4,200 14,000 17,500 50,000 50,000 Apr 3,000 3,640 900 500 800 240 1,200 6,640 25,360 1,000 4,200 8,960 11,200 32,000 32,000 May 6700 3,560 900 500 800 160 1,200 10,260 27,740 1,000 4,200 10940 11,600 38,000 38,000 Jun (12,650) 62,650 9,400 2,600 10,800 12,000 9,600 2,250 1,600 14,400 50,000 250,000 12,000 50,400 84,300 103,300 300,000 300,000 Total Attachment 1 1,000 1,200 Misc renovating costs Rent Total payments Closing balance Less payments Plus receipts Opening balance 4,600 35,400 0 40,000 12,700 35,400 Capital costs Bank balance 9,400 (advert/prom. excluded) Initial costs 900 2,600 Other overhead expenses Exploratory costs 3,000 Advertising & promotion 70 (14,520) 19,120 0 4,600 19,120 900 2,000 300 24,250 20,000 (21,470) 24,250 900 500 500 200 1,200 1,000 4,200 7,000 8,750 20,000 20,000 Oct (21,470) (25,720) 21,950 15,000 (14,520) 21,950 900 1,000 500 150 400 Motor vehicle expenses Bank interest 1,200 1,000 400 1,200 4,200 5,600 7,000 15,000 15,000 Sep Outgoings 0 4,200 4,200 Renovation wages 1,000 5,250 4,200 0 Materials 0 Aug Subcontractors Cash payments Total cash received Other receipts Renovating revenue Cash receipts Jul 27,330 25,000 (25,720) 27,330 900 500 400 230 1,200 1,000 4,200 8,400 10,500 25,000 25,000 Nov Projected cash flow – first year (make appropriate allowance for GST) Canterbury Renovations 15,690 8,000 (11,360) 15,690 900 500 200 130 1,200 1,000 4,200 3,360 4,200 8,000 8,000 Jan 29,140 12,000 (19,050) 29,140 900 2,000 300 240 400 1,200 1,000 4,200 8,400 10,500 12,000 12,000 Feb 33,720 30,000 (36,190) 33,720 900 500 400 320 1,200 1,000 4,200 11,200 14,000 30,000 30,000 Mar (11.360) (19,050) (36,190) (39,910) 13,310 30,000 (28,050) 13,310 900 500 300 170 1,200 1,000 4,200 2,240 2,800 30,000 30,000 Dec 40,940 40,000 (39,910) 40,940 900 500 500 340 800 1,200 1,000 4,200 14,000 17,500 40,000 40,000 Apr (17,990) 27,140 50,000 (40,850) 27,140 900 500 200 240 1,200 1,000 4,200 8,400 10,500 50,000 50,000 May 32,460 30,000 (17,990) 32,460 900 500 700 160 1,200 1,000 4,200 11,500 12,300 30,000 30,000 Jun (20,450) 320,450 260,000 40,000 320,450 12,700 9,400 2,600 10,800 12,00 4,700 2,250 1,600 14,400 12,000 50,400 84,300 103,300 260,000 0 260,000 Total The business plan Small Business Victoria 19 20 Plan to Succeed 5,500 1,500 Renovation wages Misc renovating costs Total overhead expenses (4,610) 5,010 Other overhead expenses Net profit 800 1,900 Advertising & promotion 1,000 Motor vehicle expenses (900) 5,000 1,900 800 1,000 2,340 5,460 1,900 800 1,000 160 100 1,200 7,800 400 110 1,200 4,100 32,200 1,500 5,500 11,200 14,000 40,000 40,000 Sep Bank Interest 1,200 400 25,900 1,500 5,500 8,400 10,500 30,000 30,000 Aug Outgoings Rent Less overhead expenses Gross profit 19,600 5,600 Materials Total renovating costs 7,000 20,000 20,000 Subcontractors Less renovating costs Total revenue Other revenue Renovating revenue Revenue Jul 6,390 5,110 1,900 800 1,000 210 1,200 11,500 38,500 1,500 5,500 14,000 17,500 50,000 50,000 Oct Projected profit or loss second year (excluding GST) Canterbury Renovations 11,020 6,030 1,900 1,690 1,000 240 1,200 17,500 47,950 1,500 5,500 18,200 22,750 65,000 65,000 Nov 9,100 5,100 1,900 800 1,000 200 1,200 14,200 45,800 1,500 6,500 16,800 21,000 60,000 60,000 Dec (7,210) 5,760 2,610 800 1,000 150 1,200 (1,450) 16,450 1,500 5,500 4,200 5,250 15,000 15,000 Jan (5,250) 7,500 2,900 2,000 1,000 0 400 1,200 2,250 22,750 1,500 5,500 7,000 8,750 25,000 25,000 Feb 1,870 5,930 2,900 800 1,000 30 1,200 7,800 32,200 1,500 5,500 11,200 14,000 40,000 40,000 Mar (170) 7,970 2,900 800 1,000 70 800 2,400 7,800 32,200 1,500 5,500 11,200 14,000 40,000 40,000 Apr (1,200) 7,150 2,900 800 1,000 50 2,400 5,950 25,050 1,500 5,500 9,800 12,250 35,000 35,000 May (3,030) 7,130 2,900 800 1,000 30 2,400 4,100 25,900 1,500 5,500 8,400 10,500 30,000 30,000 Jun 8,350 73,150 28,510 11,690 12,000 1,350 1,600 18,000 81,500 368,500 18,000 67,000 126,000 157,500 450,000 450,000 Total Attachment 3 Total cash received 1,500 1,200 Renovation wages Misc. renovating costs Rent 1,900 40,000 24,610 (5,060) (15,960) Less payments Closing balance 30,900 20,000 (20,450) Plus receipts (5,060) 30,900 1,900 800 1,000 100 0 1,200 1,500 5,500 8,400 10,500 20,000 20,000 Aug Opening balance Bank balance 24,610 Other overhead expenses Total payments 800 Advertising & promotion 110 1,000 Motor vehicle expenses Bank Interest 0 5,500 Materials Outgoings 7,000 5,600 Subcontractors Cash payments 40,000 40,000 Renovating revenue Cash receipts Jul 37,660 30,000 (15,960) 37,660 1,900 800 1,000 160 400 1,200 1,500 5,500 11,200 14,000 30,000 30,000 Sep (27,230) 43,610 40,000 (23,620) 43,610 1,900 800 1,000 210 0 1,200 1,500 5,500 14,000 17,500 40,000 40,000 Oct (31,210) 53,980 50,000 (27,230) 53,980 1,900 1,690 1,000 240 0 1,200 1,500 5,500 18,200 22,750 50,000 50,000 Nov 50,900 1,900 800 1,000 200 0 1,200 1,500 6,500 16,800 21,000 65,000 65,000 Dec (17,110) 50,900 65,000 (31,210) Projected cash flow – second year (make appropriate allowance for GST) Canterbury Renovations 20,680 22,210 60,000 (17,110) 22,210 2,610 800 1,000 150 0 1,200 1,500 5,500 4,200 5,250 60,000 60,000 Jan 5,430 30,250 15,000 20,680 30,250 2,900 2,000 1,000 0 400 1,200 1,500 5,500 7,000 8,750 15,000 15,000 Feb (7,700) 38,130 25,000 5,430 38,130 2,900 800 1,000 30 0 1,200 1,500 5,500 11,200 14,000 25,000 25,000 Mar (7,870) 40,170 40,000 (7,700) 40,170 2,900 800 1,000 70 800 2,400 1,500 5,500 11,200 14,000 40,000 40,000 Apr (4,070) 36,200 40,000 (7,870) 36,200 2,900 800 1,000 50 0 2,400 1,500 5,500 9,800 12,250 40,000 40,000 May (2,100) 33,030 35,000 (4,070) 33,030 2,900 800 1,000 30 0 2,400 1,500 5,500 8,400 10,500 35,000 35,000 Jun (2,100) 441,650 460,000 (20,450) 441,650 28,510 11,690 12,000 1,350 1,600 18,000 18,000 67,000 126,000 157,500 460,000 460,000 Total The business plan Small Business Victoria 21 Attachment 5 Assets Cash 30/06/96 30/06/97 30/06/98 $ $ $ 40,000 30,000 7,800 7,800 40,000 47,800 37,800 20,000 20,000 20,000 40,000 Debtors Capital costs Total assets Less liabilities Loan Bank O/D 20,450 2,100 Total liabilities 20,000 40,450 22,100 Net assets 20,000 7,350 15,700 20,000 20,000 20,000 Proprietors’ equity Shares Retained earnings Total proprietors’ equity 20,000 (4,300) 7,350 15,700 Statement of financial position Who can help? The statement of financial position or balance sheet brings together the results from the profit or loss statement and the cashflow statement to identify the proprietors’ net worth and how that net worth is made up. For further assistance and information contact The first column shows that when the business started Frank and Julie paid cash for $20,000 of shares in the business, and then borrowed $20,000 from Frank’s parents which gave the business an initial $40,000 cash in the bank at the end of June 1996. For simplicity, we have assumed these activities were undertaken before establishment and commercial costs were incurred. Column two shows that in the first year of operation all this initial cash is used plus an overdraft is required to run the business. The loss of $12,650 means that proprietors’ equity of $20,000 has been reduced to $7,350. Developing a business plan in this manner highlights the initial risks associated with starting a new business and the importance of proprietors having sufficient equity in the business. If the business were to close at the end of the first year Frank and Julie would only have $7,350 left from their $20,000 and they would still owe Frank’s parents their $20,000. Column three shows the $8,350 profit in the second year improves Frank and Julie’s position with their equity building back up to $15,700, while the bank overdraft has been reduced from $20,450 to $2,100. In the third year of operations the proprietors’ equity should be more than their original $20,000, and there should be cash in the bank. 22 (12,650) Plan to Succeed • Victorian Business Line 13 22 15 • business.vic.gov.au • Your local Victorian Business Centre Victorian Business Centre Network Your top three sources of up-to-date information and support are: • the Victorian Business Line on 13 22 15 • the Business Victoria website (business.vic.gov.au) • Victorian Business Centres across metropolitan and regional Victoria Ballarat ( 5320 5900 48 Sturt Street Ballarat VIC 3350 Bendigo ( 5442 4100 46 Edward Street Bendigo VIC 3550 Dandenong ( 9791 8572 314 Thomas Street Dandenong VIC 3175 Geelong ( 5229 0641 69-71 Moorabool Street Geelong VIC 3220 Glenroy ( 9304 4344 Suite A, 3 Belair Avenue Glenroy VIC 3046 Melbourne CBD ( 13 22 15 113 Exhibition Street Melbourne VIC 3000 Mildura ( 5051 2000 131 Langtree Avenue Mildura VIC 3500 Shepparton ( 5821 1811 3/164 Welsford Street Shepparton VIC 3630 Traralgon ( 5174 9233 33 Breed Street Traralgon VIC 3844 Vermont ( 9874 5733 520 Canterbury Road Vermont VIC 3133 Wangaratta ( 5721 6988 27-29 Faithfull Street Wangaratta VIC 3677 Wodonga ( 6056 2166 6/22 Stanley Street Wodonga VIC 3690 Disclaimer: The information contained in this publication is provided for general guidance only. The State of Victoria does not make any representations or warranties (expressed or implied) as to the accuracy, currency or authenticity of the information. The State of Victoria, its employees and agents do not accept any liability to any person for the information or advice which is provided herein. Authorised by the Victorian Government, 113 Exhibition Street Melbourne 3000. © Department of Innovation, Industry and Regional Development 2007 Printed by MDG Marketing Design Group, 629 Canterbury Road, Surrey Hills, Victoria 3127. 15553MDG_07/07
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