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Plan to Succeed Business Planning Guide
Transcript of Plan to Succeed Business Planning Guide
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Small BusinessVictoria
Plan to Succeeda business planning guide
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INTRODUCTION 4
THE BUSINESS PLAN
1. Primary objectives 5
2. Business plan summary 5
3. Business description 6
4. SWOT analysis: Strengths, Weaknesses, Oppor tunities 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
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Introduction
A comprehensive guide to the process ofpreparing a business plan.
A business plan is essential when applying forbank loans or a lease on business premises.
The following information will assist you throughthe process of researching and preparing abusiness 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 competitivetendering, the purchase of raw materials and equipment, the
manufacturing of fittings, their installation and finishing.
What is a business plan?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 financialinformation 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.
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The business plan
Following are the usual sectionheadings for a business plan
The text of a sample business plan for CanterburyRenovations 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 residentialconstruction. 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 Franks salary has been paid. This will be
sufficient to pay overhead expenses such as rent, interest
and advertising.
See Attachment 1.
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The business plan
3. Business descriptionProvide 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.
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.
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.
4. SWOT analysis: Strengths,Weaknesses, Opportunitiesand ThreatsA 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
Financial resources
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
Lack of management skills
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
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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 analysisIt 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
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The business plan
6. Marketing strategiesA 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:
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 limitedgeographical 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
Promotional literature
Promotional literature will be produced and distributed as follows:
The literature will illustrate styles, ideal dimensions, and provideclassic names
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 formsof 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 businessThe 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.
The competitive edgeThe 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.
7. Sales and production targets linkedto working capitalMost 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.
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.
However, another way of calculating working capital requirements isillustrated as follows:
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.
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8. Business growth and developmentBusiness 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.
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.
9. Production facilitiesProvide 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
Personnel
The proprietors will produce the units partly with their own
resources and partly with sub-contractors. Initially, the installationwill 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.
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10. Business structureBusiness 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 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.
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 proprietorsbut 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.
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.
11. Financial requirementsBusiness establishment costs
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 months 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
Entertainment
Legal fees
Market research
Publications
Samples Telephone, fax, letters, photocopying
Translations
Travel
Valuation fees
ADD UP PRE-BUSINESS COSTS HERE: $2,600
The business plan
$2,600
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INITIAL COSTS Lease $2,500
Legal costs
Stamp duty
Rent in advance
Bond
Electricity, gas and phone $500
Connections
Security deposits
Opening stock $4,000
Insurance premiums $800
Property damage
Public liability
Vehicle
Theft
Personal disability
Professional indemnity
Printing and artwork
Wages
Credit card establishment fee
Initial promotion
Promotional cost
Loan establishment cost
Stationery and office supplies
Computer software
Installation
Training
Statutory charges
Licences
Permits
Registrations
Subscriptions for publications
Association membership fees
ADD UP INITIAL COSTS HERE: $9,400
CAPITAL COSTS Business structure $1,200
Registration
Professional fees
Office equipment $2,800
Desks
Chairs
Safe
Computers
Fax, telephone system
Vehicles $4,000
Plant and machinery $2,000
Purchase price/deposit
Delivery
Repairs
Installation/commissioning
Building costs $600
Shop front
Partitions
Electrical wiring and fittings
Floor coverings
Toilets, plumbing and drainage
Painting
Signs
Display materials $1,500
Purchase price of business Franchise fee
Training shop fittings
Counters
Racks, shelving
Storage
Decorations
Security system
Trademark/design/patents
Registrations
Patent attorney fees
Reference materials
Land
ADD UP CAPITAL COSTS HERE: $12,700
$1,600
$600
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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
Maintenance and repairs
Waste disposal
Commissions
Royalties
Freight
ADD UP RENOVATION/DIRECT
COSTS FOR THE FIRST YEAR HERE: $250,000
POSSIBLE OVERHEAD EXPENSES FOR THE FIRST YEAR
Rent $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
Staff amenities
Electricity and gas
Postage
Entertainment
Travel and accommodation
Subscriptions
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
Projected profit/lossCalculate 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:
Revenue from all sources within the business (renovations, sale of
trading stock, interest earned, etc.)
Lessrenovating costs (subcontractors, materials, wages directly
related to renovations, etc.)
Equals gross profit/loss
Lessoverhead expenses (exploratory costs, initial costs, rent, finance
charges, marketing costs, vehicle costs, wages for management andadministration, etc.)
Equals net profit/loss
Notes:
1. The business structure will be a proprietary company so the profit/
loss projections will include wages for working owners/proprietors.
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.
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:
Cash receipts from all business sources (revenue, loans, sale of
equipment, etc.)
Lesscash payments (renovating costs and overhead expenses, set
up costs, capital repayments, taxation, etc.)
Equals surplus/shortfall of cash
See Attachment 2.
The business plan
$12,000
$10,800
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Initial funding of the businessThe projected cashflow will show how much money is required to
support the business during the establishment phase. What is the
source of this money?
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
Franks 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 properlydocumented business plan and the provision of a mortgage over
their home, they will be provided with an overdraft of $45,000.
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.
After the first year trading levels will be more predictable and the
finance arrangements will be reviewed.
12. Costing of products, hourly ratesand overheadsShow how the prices of the products and services will be established
The business will be involved in the following:
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
Overhead expenses $73,150
Business profit $8,350
Total $81,500 +$ 81,500
Annual business turnover
in the second year
$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 Direct cost $ Mark-up % Mark-up $
Equipment 2,500 15 375
Material 1,500 35 525
Labour 2,300 30 690
Subcontractors 1,700 25 425
Total $8,000 (ave) 25% (approx.) $2,000
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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 ($18x5248) -$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.
The business plan
13. Break-even analysis
A break-even analysis is a calculation to show the level of salesor 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 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 $62,65020% 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. Return on investment
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 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 originalinvestment 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.
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The business plan
Personnel managementThe 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
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 certificationWill 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.
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17. AdministrationManagement information systems
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.
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
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
18. Supporting DocumentationYou should provide copies of applicable documents which support
the business plan:
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)
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)
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Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Total
Revenue
Renovating
revenue
20,0
00
30,0
00
40,0
00
50,0
00
65,0
00
60,0
00
15,0
00
25,0
00
40,0
00
40,0
00
35,0
00
30,0
00
450,0
00
Otherreven
ue
Totalrevenue
20,000
30,000
40,000
50,000
65,000
60,000
15,000
25,000
40,000
40,000
35,000
30,000
450,000
Lessrenovatingcosts
Subcontrac
tors
7,0
00
10,5
00
14,0
00
17,5
00
22,7
50
21,0
00
5,2
50
8,7
50
14,0
00
14,0
00
12,2
50
10,5
00
157,500
Materials
5,6
00
8,4
00
11,2
00
14,0
00
18,2
00
16,8
00
4,2
00
7,0
00
11,2
00
11,2
00
9,8
00
8,4
00
126,000
Renovation
wages
5,5
00
5,5
00
5,5
00
5,5
00
5,5
00
6,5
00
5,5
00
5,5
00
5,5
00
5,5
00
5,5
00
5,5
00
67,000
Miscrenovatingcosts
1,5
00
1,5
00
1,5
00
1,5
00
1,5
00
1,5
00
1,5
00
1,5
00
1,5
00
1,5
00
1,5
00
1,5
00
18,000
Totalrenovatingcosts
19,600
25,900
32,200
38,500
47,950
45,800
16,450
22,750
32,200
32,200
25,050
25,900
368,500
Grossprofit
400
4,100
7,800
11,500
17,500
14,200
(1,450)
2,250
7,800
7,800
5,950
4,100
81,500
Lessoverheadexpenses
Rent
1,2
00
1,2
00
1,2
00
1,2
00
1,2
00
1,2
00
1,2
00
1,2
00
1,2
00
2,4
00
2,4
00
2,4
00
18,000
Outgoings
400
400
800
1,600
BankIntere
st
110
100
160
210
240
200
150
0
30
70
50
30
1,350
Motorvehic
leexpenses
1,0
00
1,0
00
1,0
00
1,0
00
1,0
00
1,0
00
1,0
00
1,0
00
1,0
00
1,0
00
1,0
00
1,0
00
12,000
Advertising
&promotion
800
800
800
800
1,6
90
800
800
2,0
00
800
800
800
800
11,690
Otheroverh
eadexpenses
1,9
00
1,9
00
1,9
00
1,9
00
1,9
00
1,9
00
2,6
10
2,9
00
2,9
00
2,9
00
2,9
00
2,9
00
28,510
Totaloverhead
expenses
5,010
5,000
5,460
5,110
6,030
5,100
5,760
7,500
5,930
7,970
7,150
7,130
73,150
Netprofit
(4,610)
(900)
2,340
6,390
11,020
9,100
(7,210)
(5,250)
1,870
(170)
(1,200)
(3,030)
8,350
CanterburyRenovations
PROJECTE
DPROFITORLOSSSECONDYEAR(e
xcludingGST)
Attachment 3
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Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Total
Cashrece
ipts
Renovating
revenue
40,0
00
20,0
00
30,0
00
40,0
00
50,0
00
65,0
00
60,0
00
15,0
00
25,0
00
40,0
00
40,0
00
35,0
00
460,0
00
Totalcash
received
40,000
20,000
30,000
40,000
50,000
65,000
60,000
15,000
25,000
40,000
40,000
35,000
460,000
Cashpaym
ents
Subcontrac
tors
7,0
00
10,5
00
14,0
00
17,5
00
22,7
50
21,0
00
5,2
50
8,7
50
14,0
00
14,0
00
12,2
50
10,5
00
157,500
Materials
5,6
00
8,4
00
11,2
00
14,0
00
18,2
00
16,8
00
4,2
00
7,0
00
11,2
00
11,2
00
9,8
00
8,4
00
126,000
Renovation
wages
5,5
00
5,5
00
5,5
00
5,5
00
5,5
00
6,5
00
5,5
00
5,5
00
5,5
00
5,5
00
5,5
00
5,5
00
67,000
Misc.renov
atingcosts
1,5
00
1,5
00
1,5
00
1,5
00
1,5
00
1,5
00
1,5
00
1,5
00
1,5
00
1,5
00
1,5
00
1,5
00
18,000
Rent
1,2
00
1,2
00
1,2
00
1,2
00
1,2
00
1,2
00
1,2
00
1,2
00
1,2
00
2,4
00
2,4
00
2,4
00
18,000
Outgoings
0
0
400
0
0
0
0
400
0
800
0
0
1,600
BankIntere
st
110
100
160
210
240
200
150
0
30
70
50
30
1,350
Motorvehic
leexpenses
1,0
00
1,0
00
1,0
00
1,0
00
1,0
00
1,0
00
1,0
00
1,0
00
1,0
00
1,0
00
1,0
00
1,0
00
12,000
Advertising
&promotion
800
800
800
800
1,6
90
800
800
2,0
00
800
800
800
800
11,690
Otheroverh
eadexpenses
1,9
00
1,9
00
1,9
00
1,9
00
1,9
00
1,9
00
2,6
10
2,9
00
2,9
00
2,9
00
2,9
00
2,9
00
28,510
Totalpaym
ents
24,610
30,900
37,660
43,610
53,980
50,900
22,210
30,250
38,130
40,170
36,200
33,030
441,650
Bankbalance
Openingba
lance
(20,4
50)
(5,0
60)
(15,9
60)
(23,6
20)
(27,230)
(31,2
10)
(17,110)
20,6
80
5,4
30
(7,7
00)
(7,8
70)
(4,0
70)
(20,450)
Plusreceipts
40,0
00
20,0
00
30,0
00
40,0
00
50,0
00
65,0
00
60,0
00
15,0
00
25,0
00
40,0
00
40,0
00
35,0
00
460,000
Lesspaym
ents
24,6
10
30,9
00
37,660
43,6
10
53,9
80
50,9
00
22,2
10
30,2
50
38,1
30
40,1
70
36,2
00
33,0
30
441,650
Closingba
lance
(5,060)
(15,960)
(27,230)
(31,210)
(17,110)
20,680
5,430
(7,700)
(7,870)
(4,070)
(2,100)
(2,100)
CanterburyRenovations
PROJECTE
DCASHFLOWSECONDYEAR(makeappropriateallowanceforGST)
21Small Business Victoria
The business plan
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Statement of financial position
The statement of financial position or balance sheet brings together
the results from the profit or loss statement and the cashflowstatement to identify the proprietors net worth and how that net worth
is made up.
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 Franks 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 Franks
parents their $20,000.
Column three shows the $8,350 profit in the second year improves
Frank and Julies 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.
Who can help?
For further assistance and information contact
Victorian Business Line 13 22 15 business.vic.gov.au
Your local Victorian Business Centre
Attachment 5
30/06/96 30/06/97 30/06/98
Assets $ $ $
Cash 40,000
Debtors 40,000 30,000
Capital costs 7,800 7,800
Total assets 40,000 47,800 37,800
Less liabilities
Loan 20,000 20,000 20,000
Bank O/D 20,450 2,100
Total liabilities 20,000 40,450 22,100
Net assets 20,000 7,350 15,700
Proprietors equity
Shares 20,000 20,000 20,000
Retained earnings (12,650) (4,300)
Total proprietors equity 20,000 7,350 15,700
22 Plan to Succeed
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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 personfor the information or advice which is provided herein. Authorised by the Victorian Government, 113 Exhibition Street Melbourne 3000.
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
Victorian Business Centre Network