Plan to Succeed Small Business Victoria a business planning guide

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