Plan to Succeed Business Planning Guide

8/12/2019 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

3Small Business Victoria

The business plan


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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


The business plan


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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.

16 Plan to Succeed


16/22

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


Projected profit/loss - second year


Projected cashflow - second year


Statement of financial position



The business plan


17/22


18/22


19/22

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

20 Plan to Succeed


20/22

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)


The business plan


21/22

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


22/22

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

Documents

Plan to Succeed Business Planning Guide