Small Business Victoria
Plan to Succeeda business planning guide
INTRODUCTION 4
THE BUSINESS PLAN
1.Primaryobjectives 5
2.Businessplansummary 5
3.Businessdescription 6
4.SWOTanalysis:Strengths,Weaknesses,OpportunitiesandThreats 6-7
5.Marketanalysis 7
6.Marketingstrategies 8
7.Salesandproductiontargetslinkedtoworkingcapital 8
8.Businessgrowthanddevelopment 9
9.Productionfacilities 9
10.Businessstructure 10
11.Financialrequirements 10-13
12.Costingsofproducts,hourlyratesandoverheads 13-14
13.Break-evenanalysis 14
14.Returnoninvestment 14
15.Managementandownership 15-16
16.Qualitycertification 16
17.Administration 17
18.Supportingdocumentation 17
ATTACHmENTS
1.CanterburyRenovationsprojectedprofitorloss–firstyear 18
2.CanterburyRenovationsprojectedcashflow–firstyear 19
3.CanterburyRenovationsprojectedprofitorloss–secondyear 20
4.CanterburyRenovationsprojectedcashflow–secondyear 21
5.Statementoffinancialposition 22
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Thebusinessplan
Introduction
Acomprehensiveguidetotheprocessofpreparingabusinessplan.
Abusinessplanisessentialwhenapplyingforbankloansoraleaseonbusinesspremises.
Thefollowinginformationwillassistyouthroughtheprocessofresearchingandpreparingabusinessplan.
Alwaysseeksoundprofessionaladvice(legal,accountingandcommercial)beforemakingimportantbusinessdecisions.
Businesspeoplewhodotheirownplanningnotonlysavealotofmoney,theylearnalotabouthowtobuildasuccessfulbusiness.Theyalsohaveagreatersenseofownershipoftheirbusinessplanandaremorelikelytoutiliseitasanongoingpartofgoodbusinessmanagement.However,preparingabusinessplanforthefirsttimeisnotaseasyasitseems.
Althoughtherearemanyinformationproductsavailableandconsultantsofferingassistancewithbusinessplanning,thisbookletisdesignedspecificallytoassistnewandexistingsmallbusinessoperatorsplantheirbusinesseswithminimalexternalassistance.
Thisbookletsetsoutthekeyfeaturesofabusinessplanandprovidespromptsandexamplesofhowabusinessplaniswritten.
Thesamplecasestudyusedinthisbookletisanewbusinessinkitchen,bathroomandlaundryrenovationstoberunbyahusbandandwifeteam.Thebusinesswillrequire:
• existingknowledgeofbuildingtechnologyandthebuildingindustry
• determinationtobuildasmallbusinessandlearnaboutbusinessmanagement,and
• adequatecapital.
Thebasicoperationswillbeobtainingcontractsbycompetitivetendering,thepurchaseofrawmaterialsandequipment,themanufacturingoffittings,theirinstallationandfinishing.
Whatisabusinessplan?Abusinessplanissimplythestrategytoachievetheobjectivesoftheproprietorsofthebusiness.Abusinessplanpreparedforabankorinvestorswillneedtoincludeevidenceofthemarketpotentialsupportingtheprojectedsalesofthebusiness.Preferablyabusinessplantakestheformofawrittendocument.Itplainlysetsoutalltheimportantfactsaboutthebusiness,itshistory(ifrelevant),thecurrentposition,theobjectivesandthebusinessactivitiestobeundertaken.
Whydoabusinessplan?Itisbecomingincreasinglytoughtosurviveinbusiness.Itisnotgoodenoughtohaveagoodproductorservice.Businesspeople,whethertheybepanelbeaters,manufacturersordoctorsmustalsobegoodmanagers.Successfulbusinessmanagershaveclearobjectives,producegoodproductsorservices,understandthemarket,managetheirmoneyproperlyandaregoodemployers.
Accordingly,theprimaryreasontoformulateabusinessplanistoaddressalltheissuesthatmakeasuccessfulbusiness.Inthecaseofanewbusiness,abusinessplanwillassistindeterminingthefeasibilityoftheproposal.Foranexistingbusiness,comparingactualoutcomesagainstprojectionswillassistinrefiningthebusinessplanandimprovingperformance.
Butthereareotherimportantreasonstoformulateabusinessplan.Forastart,nobankwilllendmoneytoabusinessunlessithasabusinessplanthatdemonstrateshowthebusinessproposestoservicetheinterestandrepaytheloan.Theinvolvementofstakeholderssuchasstaff,familyandpartnersintheformulationofabusinessplanisalsoagoodwayofsecuringtheircommitmenttothebusiness.
Important note Thesamplebusinessplaninthisbookletabouthowtowriteabusinessplanisprovidedasaguideonly.Thestatisticalandfinancialinformationinthisbookletareassumptionsforthecasestudyandshouldnotbeusedforanactualbusinessplan.Intendingandexistingbusinesspeoplemustundertaketheirownresearchandusereliabledataforthepreparationoftheirbusinessplans.
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Followingaretheusualsectionheadingsforabusinessplan
ThetextofasamplebusinessplanforCanterburyRenovationsisborderedlikethis.
Noteverysectionhastobeaddressedinthesamedegreeofdetail.Forexample,apersonbuyingawellestablishedbusinessmighthavetopaymuchmoreattentiontothevaluationofthebusinessthantothemarketanalysis.
Conversely,anewstarterwantingtobreakintoacompetitivebusinesssuchasroadtransport,buildingconstructionorthelegalprofessionshouldpayparticularattentiontomarketresearchandmarketingstrategies.
1.Primaryobjectives
Theproprietorshaveagreedtoestablishabuildingbusiness,initiallyspecialisingindomestickitchen,bathroomandlaundryrenovationsandprogressingintwotothreeyearstoresidentialconstruction.Theemphasiswillbeonhighqualityproductsandservice,thereinvestmentofprofitsinbusinessgrowthandthedevelopmentofabusinessidentityseparatefromtheproprietors.Theiraimwillbetocompleteeveryjobontimeandwithinbudget.
2.Businessplansummary
The conceptTheproprietorsFrankandJulieWalterhaveabuildingbackgroundcombinedwithconsiderableflairininteriordesign.Theirproposalistoestablishanewbusinessprovidingkitchen,bathroomandlaundryrenovationsforhomeowners.
The product / serviceThebusinesswillsupplyandinstalldomestickitchen,bathroomandlaundryequipmentandfittingsandcarryoutallassociatedbuildingservices.Afreedesignandquotationservicewillalsobeprovided.Theproductsandserviceswillbeofhighqualityandincludeawiderangeofbuilt-inequipmentsuchasovens,microwaves,cooktopsanddishwashers.
market analysisMarketresearchcarriedoutbytheproprietorsrevealincreasingactivityinhomerenovationbyhomeownerswhosubcontractthemorecomplexworktobuilders,especiallyintheinnersuburbs.
Manyexistingkitchen,bathroomandlaundryrenovatorsdonothaveagoodreputation,sotheproprietorsbelievetheircompetitiveadvantagewillbetheprovisionoftopqualityproductsandservices,accesstospecialityitemsandinnovativedesigns.
marketing strategyTheproprietorsbelievethebestmarketingstrategyisacombinationofagoodnetworkofcontacts,areputationforqualityandreliabilityandpersonalreferrals.Thiswillbecomplementedbybrochures,directcontactwithhomebuyersinselectedareasandasmalldisplayinalocalrentedshop.
Financial data Theinitialfundingwillbe$85,000.Theproprietorswillprovidetheinitial$40,000,andwillarrangeanoverdraftof$45,000securedbyamortgageovertheirhome.Theyexpecttoachieveaturnoverof$300,000inthefirstyearyieldingagrossprofitof$50,000afterFrank’ssalaryhasbeenpaid.Thiswillbesufficienttopayoverheadexpensessuchasrent,interestandadvertising.
See Attachment 1.
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3.BusinessdescriptionProvideabriefdescriptionofthecoreactivitiesofthebusiness.Inthecaseofanexistingbusiness,stateitshistory,currentpositionandfuturebusinessactivities.Foranewbusiness,outlinetheproposal,wheretheproprietorswantthebusinesstobeintwotofiveyearsandhowtheywillachievetheirobjectives.
Thebusinesswillbecalled‘CanterburyRenovations’.Thenamehasalreadybeenregisteredasabusinessnameandanapplicationhasbeenlodgedforatrademark.Thecoreactivitywillbetherenovationofkitchens,bathroomsandlaundries.Thebusinesswillprovideacompleteservicerangingfromdesign,quotationandinstallationtoaftersalesmaintenanceandasevenyearguaranteeovertheworkmanship.Althoughtheproprietorsintendtoconcentrateontheircorebusiness,theywillalsoacceptshopfittingandgeneralrenovationsifopportunitiesarise.
Theproprietorswillestablishasmallshowroomintheinnereasternsuburbs.Thereareanumberofpremisesavailableatamodestrental.Thesepremiseswillalsobeusedforthestorageofmaterialsandequipment.Onesuchshopisavailableforrentandoutgoingsof$14,000perannum.Somemanufacturingworkwilltakeplaceattheproprietors’residence.Thishasbeenapprovedbythecouncilasahomeoccupation.
Theproprietors’objectiveistoachieveanoperatingturnoverof$300,000bytheendofthefirstyear.Inthesecondyear,theproprietorsexpecttheannualturnovertobe$450,000,withtheemploymentoftwomorestaff.Thisgrowthwillresultfromthemarketingstrategyandreputationfortheprovisionofexcellentproductsandservices.Themanufacturingworksmayhavetoberelocatedtoanindustrialsiteandadditionalfinancewillberequiredinduecourse.
4.SWOTanalysis:Strengths,Weaknesses,OpportunitiesandThreatsASWOTanalysishighlightsstrengthsandweaknesseswithinthebusinessandidentifiesopportunitiesandthreatsintheexternalbusinessenvironment.Thiswillenabletheproprietorstomakethemostoftheircompetitiveadvantages,takestepstoovercometheirshortcomings,exploitopportunitiesinthemarketplaceandminimisetheirexposuretoexternalthreats.
Providealistofthestrengths,weaknesses,opportunitiesandthreats.
Strengths
• Technicalcompetenceoftheproprietors
• Dedicatedstaff
• Completeagreementbytheproprietorsontheirobjectives
• Financialresources
• Agoodnetworkofcontactsforpotentialclients,suppliersandtradespersons
• Abilitytorespondtotheneedsofthemarket
• Businesslocatedwithinthetargetmarket
Weaknesses
• Lackofmanagementskills
• Sizeofpremises
• Notrackrecordinbusiness
• Noplanformanagementsuccession
• Inefficientequipment
• Lackofresearchanddevelopmentfacilities
• Limitedsecuritywithwhichtoraisefinanceforfuturegrowthanddevelopment
• Thebusinessisprincipallydependentononepersonduringtheformativestages
Opportunities • Rapidlygrowingmarketbecauseofapreferencebyhome
ownerstorenovateratherthanshift
• Poorreputationofmanyexistingrenovationbusinessesandbuildingtradespersons
• Largenumberofolderbutvaluablehomeswithinthetargetmarketarea
• Availabilityofcasualstaffandtradespersons
• Availabilityofdisplayandmanufacturingpremiseswithinthearea
• Highdisposableincomewithinthetargetmarket
• Expansionofthebusinessintootherareasand/orfranchising
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Threats
• Poorreputationoftheindustryregardingqualityandreliability
• Economicdownturns
• Existingandfuturecompetitorswithintheindustry
• Increasingcostofmaterials,equipmentandsubcontracttradespersons
• Difficultiesofgettinggoodstaffandreliablesubcontractors
• Possiblegovernmentregulation
• Geographicallydiversemarket
5.MarketanalysisItisessentialtoshowthatthereisasoundcustomerbaseforthebusiness.Provideadescriptionofthemarketintermsofthefollowing:
• Whoarethecustomers?
• Whatistheirgeographicallocation?
• Howmanycustomersarethereinthislocation?
• Whatistheirpurchasingpower?
• Howaretheyaccessed?
• Whatisthestabilityofthemarketandexpectedgrowth(ordecline)?
• Whataretheseasonaltrends?
• Whatinfluencesthecustomers?
• Whatisthepricesensitivity?
• Whatisthecompetitiveedge?
market analysis
Theproprietorshavecompletedconsiderableresearchofthemarketoverrecentyears.StatisticalinformationhasbeenobtainedfromtheAustralianBureauofStatisticsandlocalcouncilrecords.Inaddition,extensivepersonalnetworkingbytheproprietorshasprovidedtheinformationtobuildaprofileofthemarketforthebusiness.
AccordingtotheAustralianBureauofStatistics,buildingrenovationisthemoststablesectorofthedomesticconstructionindustry.Manyhomeownerswhowanttoimprovetheirlivingenvironmentchoosetorenovateratherthanmove.Relocationcosts–suchaslegalandestateagents’fees,mortgagecosts,lodgingfees,andstampdutyaresignificantdeterrentstomoving.Savingthesecostsmakesasizeablecontributiontothecostofrenovatinganexistinghome.
AsurveyofcouncilsintheinnereasternmunicipalitiesofStonnington,BoroondaraandWhitehorserevealedthatinthe1995/96financialyearapproximately2,500permitswereissuedforhomerenovations.Approximatelyhalfwereissuedtohomeowners.Aboutathirdofowners/renovatorswerepeoplewhohadrecentlypurchasedahomewithapreferenceforlocalityratherthancondition.
Mostowners/renovatorsintheareassurveyedwereinthemiddletohighincomebracketwithatleasttwosourcesofincomeforeachhousehold.Therewasusuallyhigherthanaveragedisposableincome,whichwasspentimprovingtheirqualityoflife.Therewasadefinitepreferenceforhomerenovationbecauseofimmediateandenduringfinancialbenefits.
Theproprietorshavesurveyedtheexistingcompetitorsandidentifiedtheirweaknessesasfollows:
• Largeoverheadswhichmeanhigherprices
• Mostarenotlocatedclosetothetargetmarket
• Usuallysubcontracttheirmanufacturingtoexternalcontractors
• Fewhavestrongpersonalcontactswithinthetargetmarket
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Thebusinessplan
6.MarketingstrategiesAgoodmarketingstrategyisvitaltothesuccessofabusiness.Customersmustknowabouttheproduct/sandservice/softhebusinessandbeencouragedtobuythem.
Describethestrategiesthatwillbeusedtoachievesales.Thefollowingpointsshouldbeconsidered:
First-class customer serviceCanterburyRenovationswillprovideafirst-classcustomerserviceintermsof:
• Respondingtoenquiries
• Hoursofservicetomeetcustomerneeds,withinthelimitedgeographicallocation
• Providingclearandcomprehensivejobspecificationsandfixedprices
• Startingandfinishingthejobsontimeandtobudget
• Minimaldisruptiontothehouseholdduringinstallation
• Guaranteeofqualityproduct
• Siteclean-uponjobcompletion
• After-salesservice
Promotional literature Promotionalliteraturewillbeproducedanddistributedasfollows:
• Theliteraturewillillustratestyles,idealdimensions,andprovideclassicnames
• Itwillincludeinformationabouttheproprietorstocreatea‘personalfeel’aboutthebusiness
• Itwillbedistributedintheareatoallhomebuyers,applicantsforpermitsforrenovationsandrespondentstolocaladvertising
Theadvertisingandpromotionalbudgetinthefirstyearwillbe$12,000.
means of advertising • Selectiveandspecialisedmarketpromotionandlocalprint
mediaanddirectmarketingtohomebuyers/renovators
• ‘Wordofmouth’,whichhasprovedtobeoneofthebestformsofpromotionand,asaresultofthe‘closeknit’communitytheproprietorsworkin,theybelievethiswillbethemosteffectiveformofadvertising
Pricing policy Theproprietorsbelievethatbecauseofthehighdisposableincomeinthelocationtheyintendtotarget,clientswillnotbeparticularlypricesensitive,ratingqualityofproductandservicemoreimportant.Accordingly,thebusinesswillbaseitscompetitiveadvantageonqualityratherthancheapprices.
Location and visibility of the business Thebusinesswillbelocatedinthegeographicalcentreofthemarket,withitsdisplayunitandmanufacturingfacilitiesnofurtherthan10kilometresfromthefarthestboundaryofthemarket.Onlyonesimilarbusinessislocatedclosetothemarket.Otherwiseallcompetitorsarelocatedinoutersuburbanareaswhichisinconvenienttoclients.
The competitive edge Thecompetitiveedgewillbesuperiorservice,customersdealingwiththeproprietors(notemployedsalesstaff),freedesignandquotation,qualityoftheproduct,after-salesservice,sevenyears’guarantee,thelocationofthebusiness,andtherangeofmaterials,finishesandequipmentavailable.Theproprietorswillensurethesebenefitsareemphasisedthroughpromotionalliteratureandword-of-mouthreferrals.
7.SalesandproductiontargetslinkedtoworkingcapitalMostbusinessesareunderpinnedbycash.Usually,materials,stock,labour,andsubcontractworkwillhavetobepaidforbeforethecustomerspayforthework,equipmentandservicestheyreceive.Thereforethemoresalesthatareachievedthemoremoneywillberequiredtofinancetheproduction.Themoneyrequiredtopaythebillsastheyfalldueiscalledworkingcapital.
Workingcapitalrequirementsarederivedfromtheprojectedcashflow.Thecashflowisbasedonamonthlyscheduleof‘moneyin’less‘moneyout’.
However,anotherwayofcalculatingworkingcapitalrequirementsisillustratedasfollows:
CanterburyRenovationswill,duringthefirstyear,achievethefollowinglevelsofsalesandproductioninaveragefigures:
25renovationjobsfor$12,000each.
Totalsales–$300,000.Eachjobwilllastfourweeks(oneweekproductionandthreeweeksinstallation)
i.e.25x4=100weeksproductionandinstallationtime
÷48effectiveworkingweeksperyear=approximatelytwojobsconcurrent.
Duetothefluctuatingnatureoftheindustryitispossiblethattherecouldbebetweenzeroandfourjobsconcurrent.Iffourjobsareconcurrentthefinancialrequirementswouldbethetotalcontractpriceslessdepositsreceived.
fourjobsx$12,000=$48,000–depositsof15%
($7,200)=$40,800.Thereforethemaximumworkingcapitalrequiredwillbeabout$41,000whichispredictedtooccurinAprilaccordingtothecashflow.
See Attachment 2.
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8.Businessgrowthanddevelopment
Businessgrowthanddevelopmentmeansincreasingsales,optimisingtheuseofthebusinessinfrastructure,increasingbuyingpower,improvingefficienciesthroughinternalspecialisationandcontinuallyimprovingtheproductandservice.Businessesthatdonothaveastrategyforgrowthanddevelopmentwillsoonbeovertakenbycompetitors.Describehowthebusinesswillbedeveloped.
Theproprietorswillkeepabreastofnewproducts,technologyandproductionmethods.Theywillcontinuetoliaisewithlocalandoverseassuppliers.Marketingtechniqueswillbemonitored.Thosethataresuccessfulwillbeexpandedandtheotherswillbeabandoned.
Theproprietorsareespeciallyconsciousoftheneedtocontinuallymonitorthefinancialpositionofthebusiness.Sales,profitabilityandespeciallycashflowwillbecomparedagainstprojectionsonamonthlybasis.Thecostsofeachjobwillalsobecomparedwiththeestimatestoensureprofitabilityisbeingachievedandtheestimatesareaccurate.
Thebusinesswillnotbeprofitableinthefirstyear.Butexpectedprofitsinsubsequentyearswillbeappliedtobusinessdevelopmentbytheexpansionofproductionfacilities,expenditureonpromotionalactivitiesandreservingcashtopayformorematerials,labourandsubcontractworkassociatedwithahigherlevelofbusinessactivity.
Theproprietorswillanalyseallunsuccessfulquotations.Prospectivecustomerswillbeaskedtoprovidecommentonwhytheyrejectedthequotations,andinformationgainedthiswaywillbeusedinmonitoringtheeffectivenessofthepricingandmarketingstrategy.
9.ProductionfacilitiesProvideanoutlineofhowtheproductsandserviceswillbeproduced:
• Theskills,qualificationsandexperienceoftheproprietors
• Theequipmentrequired
• Sourcesofrawmaterials
• Subcontracting
• Technicalrequirements
• Personnel
Theproprietorswillproducetheunitspartlywiththeirownresourcesandpartlywithsub-contractors.Initially,theinstallationwillbecarriedoutbyFrank,withelectricalandtilingworksubcontractedtoexperiencedtradespersons.Astheworkloadincreasesmoreinstallationworkwillbesubcontracted.
Frankhasthecarpentryandplumbingskillstoproducethebasicunits,butworksuchaslaminatingveneerswillbeoutsourcedtospecialistsuppliers.Theproprietorshavealargegarageattheirpremisesandwoodworkingequipment–suchasarouter,adockingsaw,planer,benches,jigs–andalargerangeofhandtools.Theyalsoownafourwheeldrivevehicleandatrailer.
Theproprietorshavesatisfiedthecouncilthattheproductionactivitieswillbeahome-basedoccupationandnoplanningpermitwillberequired,providedthatnoisymachinerywillonlybeusedbetween9:00amand5:00pmMondaystoFridays.
Theproprietorshaveobtaineddesigndetailsandtechnicalspecificationsforfittingssuchasstoves,hotplates,ovens,sinks,dishwashers,hoods,baths,basinsandtoilets.Theyhavealsoestablishedcontactwithsuppliersofinnovativekitchenandlaundryproducts.
Theproprietorsenvisagethatafterthefirstyearofbusiness,theproductionfacilitieswillberelocatedtoasmallfactoryclosetothemarket.Theshowroomwillalsobemovedtothesepremises.Thefactorywillbeanextraexpensetothebusiness,butcanbeaffordedwiththehigherlevelofbusinessandprofitabilityinthesecondyearofbusiness.
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10.BusinessstructureBusinessproprietorsmaychoosetooperatetheirbusinessesunderoneofanumberofstructureswithdifferentoptionsforidentifyingthebusinessanditsproductsandservices.Theseinclude:
• Businessstructures–Soletrader–Partnership–Limitedpartnership–Proprietarycompany
• Identifyingfeatures–Businessnames–Companynames–Trademarks–Designs–Patents
Provideacleardescriptionoftheproposedownershipstructureandwhyitwaschosen.
Thebusinesswillbeestablishedasaproprietarycompany.Thecompanywillbeacquiredasashelfcompanyforacostof$1,000plus$200tochangethecompanynameto‘F&JWalterNomineesPtyLtd’.Thename‘CanterburyRenovations’hasbeenregisteredasabusinessnameinthenamesoftheproprietorsbutwillbetransferredtothecompanyafterincorporation.Theproprietorshavealsoappliedforatrademarktosecurethenameoftheirproductandservice.
Acompanystructurewaschosenoverapartnershiporsoletraderbecauseacompanywouldprovidethebestpossibleprotectionoftheproprietors’personalassetsintheeventofafailureofthebusiness.Anallowancehasbeenmadeforthehighercompliancecostsintheprojectedoperationalcosts.Ithasalsobeenrecognisedthattheproprietors/operatorswillbedeemedemployees,whichwillinvolvestatutoryresponsibilities,suchasWorkCover,superannuationpaymentsandlongserviceleave.
11.FinancialrequirementsBusiness establishment costs
Itisvitaltoassesstotalfundsrequiredtosetupabusinessandcoveritsoperatingcostsuntilitbecomesprofitable.Atfirstglance,itmayappearthatallthatisrequiredisstock,basicfixturesandperhapsthefirstmonth’srent.However,therearemanyothercostsandexpensesinstartingabusinessandtheitemsonthefollowinglistsshouldbeconsidered.
Note: all items in the following tables should include GST as applicable.
PRE-BUSINESS COSTS
• Accommodation
• Accountingfees
• Businessplanning
• Consultants
• Entertainment
• Legalfees
• Marketresearch
• Publications
• Samples
• Telephone,fax,letters,photocopying
• Translations
• Travel
• Valuationfees
ADD UP PRE-BUSINESS COSTS HERE: $2,600
Thebusinessplan
$2,600
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INITIAL COSTS
• Lease $2,500 –Legalcosts –Stampduty –Rentinadvance –Bond
• Electricity,gasandphone $500 –Connections –Securitydeposits
• Openingstock $4,000
• Insurancepremiums $800 –Propertydamage –Publicliability –Vehicle –Theft –Personaldisability –Professionalindemnity
• Printingandartwork
• Wages
• Creditcardestablishmentfee
• Initialpromotion
• Promotionalcost
• Loanestablishmentcost
• Stationeryandofficesupplies
• Computersoftware –Installation –Training
• Statutorycharges –Licences –Permits –Registrations
• Subscriptionsforpublications
• Associationmembershipfees
ADD UP INITIAL COSTS HERE: $9,400
CAPITAL COSTS
• Businessstructure $1,200 –Registration –Professionalfees
• Officeequipment $2,800 –Desks –Chairs –Safe –Computers –Fax,telephonesystem
• Vehicles $4,000
• Plantandmachinery $2,000 –Purchaseprice/deposit –Delivery –Repairs –Installation/commissioning
• Buildingcosts $600 –Shopfront –Partitions –Electricalwiringandfittings –Floorcoverings –Toilets,plumbinganddrainage –Painting –Signs
• Displaymaterials $1,500
• PurchasepriceofbusinessFranchisefee
• Trainingshopfittings –Counters –Racks,shelving –Storage –Decorations
• Securitysystem
• Trademark/design/patents–Registrations
–Patentattorneyfees –Referencematerials
• 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
• Grouptax/payrolltax
• Maintenanceandrepairs
• Wastedisposal
• Commissions
• Royalties
• Freight
ADD UP RENOvATION/DIRECTCOSTS FOR THE FIRST yEAR HERE: $250,000
POSSIBLE OvERHEAD ExPENSES FOR THE FIRST yEAR
• Rent $14,400
• Outgoings $1,600
• Interests $2,250
• Motorvehicleexpenses $9,600
• Advertisingandpromotion $12,000
• Bankcharges
• Hirepurchasepayments
• Leasepayments
• Insurancepremiums
• Accountingfees
• PAYGTAX
• Legalfees
• Staffamenities
• Electricityandgas
• Postage
• Entertainment
• Travelandaccommodation
• 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/loss
Calculatetheexpectedprofit/lossforthenexttwelvemonthperiodonaquarterlybasisforanexistingbusinessoronamonthlybasisforanewbusinessasfollows:
Revenuefromallsourceswithinthebusiness(renovations,saleoftradingstock,interestearned,etc.)
Lessrenovatingcosts(subcontractors,materials,wagesdirectlyrelatedtorenovations,etc.)
Equals gross profit/loss
Lessoverheadexpenses(exploratorycosts,initialcosts,rent,financecharges,marketingcosts,vehiclecosts,wagesformanagementandadministration,etc.)
Equals net profit/loss
Notes:
1. Thebusinessstructurewillbeaproprietarycompanysotheprofit/lossprojectionswillincludewagesforworkingowners/proprietors.
2. Useactualreceiptsandexpenditureofmoneytocalculateprofit/loss.Thisissimplerthanusingearningsandcommitments,butsomeexpensessuchasannualinsurancepremiumsshouldbeamortised(orspreadequally)overthewholeyear.
See Attachment 1.
Projected cashflow
Irrespectiveoftheprofitabilityofabusinessitisnecessarytoensurethatthebusinessdoesnotrunoutofcash.Thiscanhappenbecause,forexample:whentoomuchstockormaterialsarepurchased;clientsdonotpaywhentheyshould;theowners/proprietorsdrawtoomuch;fundshavenotbeensetasidetopaytaxortoomuchhasbeenborrowedtosetupthebusiness;andthereisinsufficientprofitonhandtomakethecapitalrepayments.
Theprojectedcashflowhighlightssurplusesandshortfallsofcashandisavitalpartofgoodfinancialmanagementofabusiness.Itiscalculatedasfollows:
Cashreceiptsfromallbusinesssources(revenue,loans,saleofequipment,etc.)
Lesscashpayments(renovatingcostsandoverheadexpenses,setupcosts,capitalrepayments,taxation,etc.)
Equals surplus/shortfall of cash
See Attachment 2.
Thebusinessplan
$12,000
$10,800
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Initial funding of the business
Theprojectedcashflowwillshowhowmuchmoneyisrequiredtosupportthebusinessduringtheestablishmentphase.Whatisthesourceofthismoney?
Theownershave$20,000oftheirowntoinvestinthebusinessandhavebeenofferedaninterestfreeloanof$20,000fromFrank’sparentswithnospecificcommitmentforrepayment.Buttheclosingbalancesintheprojectedcashflowshowsthatsome$41,000ofadditionalfundswillberequiredoverthefirstyearofthebusiness.Theownershavehadpreliminarydiscussionswiththeirbankmanagerandsubjecttotheprovisionofaproperlydocumentedbusinessplanandtheprovisionofamortgageovertheirhome,theywillbeprovidedwithanoverdraftof$45,000.
Anoverdraftwasagreedasthemostsuitablearrangementforthefirstyearasthefinancialrequirementswillvarysubstantiallyfrommonthtomonthandtherewillbenoprofitswithwhichtorepaycapital.
Afterthefirstyeartradinglevelswillbemorepredictableandthefinancearrangementswillbereviewed.
12.Costingofproducts,hourlyratesandoverheads
Showhowthepricesoftheproductsandserviceswillbeestablished
Thebusinesswillbeinvolvedinthefollowing:
• Purchaseandsupplyofequipment
• Purchaseandconversionofraworpartiallyfinishedmaterials
• Provisionofmanufacturingandon-sitelabour
• Provisionofsubcontractwork
Thefollowingassumptionsaremadeinpreparingquotations:
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
Thereforetocoverprofitoverheads,theaveragemark-uponalldirectcosts,equipment,materials,labourandsubcontractors’costswillbe25%.
Accordingly,quotationswillbepreparedonthefollowingbasis(seebelow)foratypicaljobofe.g.$10,000:
Note:all items should include GST as applicable.
Item Direct cost $ mark-up % mark-up $Equipment 2,500 15 375Material 1,500 35 525Labour 2,300 30 690Subcontractors 1,700 25 425Total $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 $
Hourlyrate(accordingtoawardorworkplaceagreement) 18.00
Addoncosts,e.g.WorkCover5% 0.90
Medicalcosts,e.g. 1,700
Superannuation $8,000
Payrolltax (N/A)
Sickpayallowance,e.g. 2.00
Annualleaveallowance($18x52÷48)-$18 1.50
Toolsallowance 1.00
Total 25.48
Allowancefornon-productivetime,e.g.industrialaction,maintenance,travelling,toolmaintenance,traininginjuries,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.
Thebusinessplan
13.Break-evenanalysis
Abreak-evenanalysisisacalculationtoshowthelevelofsalesorbusinessrequiredtopayforalltheoverheadsofthebusinessandatleastcomeouteven.Thebreak-evenpointforCanterburyRenovationsiscalculatedasfollows:
Theaveragemark-upondirect/renovationcostsis25%.
e.g.a$10,000jobwillhaveadirectcostof$8,000.Thereforethegrossprofitwillbe$2,000,i.e.20%ofthevalueofthejob.
Theprojectedoverheadsforthebusinessinthefirstyearwillbe$62,650.Tobreakeventhebusinesswouldhavetoachievesalesofwhich80%paysforthedirect/renovationcostsand20%paysfortheoverheadsof$62,650.
Ifsalesx20%=$62,650,thenthesalestoreachbreak-evenwouldbe$62,650÷20%ormultipliedby5,i.e.$313,250.
Therefore,thebreak-evenpointofsalesinthefirstyearwillbe$313,250.Thiswillnotbeachievedinthefirstyear.However,inthesecondyeartheprofitmarginof18%oftheprojectedsalesof$450,000(i.e.$81,500grossprofit)willcovertheoverheadsofabout$73,150andproduceanetprofitof$8,350.
14.ReturnoninvestmentTheproprietors’moneytiedupinabusinessisaninvestment.Ifitwasnottiedupinthebusinessitwould,presumably,beearninginterestinsomeotherformofinvestment.Willthebusinessprovideareturnontheinvestmentatleastequaltofixeddepositsinbanksorbluechipshares?
TheprojectednetlossinthefirstyearmeanstheproprietorswillnotreceiveanyreturnonthemoneytheyinvestedinCanterburyRenovations.However,theexpectedprofitinthesecondyearwillbe$8,350(afterproprietors’salarieswhicharepartofcostsandexpenses).
Thereforethereturnof$8,350ontheproprietors’originalinvestmentof$40,000isabout21%.Whilstbetterthanthecurrentrateofreturnonmoresecureinvestmentstheproprietorsareconsciousoftherisksandinsecurityofsmallbusiness,particularlyinthebuildingindustryandaimtoincreasethereturnoninvestmentto25%infutureyears.Thisisparticularlyimportantastheproprietorsplantoretainprofitstopartlyfinancefuturegrowthofthebusinessandsoincreasetheirinvestmentinthebusiness.
14 PlantoSucceed
15.ManagementandownershipDescribethebackgroundofthekeypersonsinthebusinessandwhatotherstafforcontractorswillberequired.Alsobrieflystatetherolesofthekeypersons,themethodsofremuneration,methodsofrecruitment(whereapplicable)andtrainingprograms.
TheproprietorswillbeFrankandJulieWalter.Frankhasatradecertificateinplumbingandisaregisteredbuilder.Hehasbeenemployedasaprojectmanagerbyaleadinghomebuilderfortenyearsandisthoroughlyfamiliarwithbuildingtechnology.Inthelasttwoyears,Frankalsoworkedparttimeforthesamefirmasasalesconsultantdevelopinggoodcustomerrelationsskills.JuliestudiedhomeeconomicsatRMITandisnowateacherataprivateschoolintheinnereasternsuburbs.BothFrankandJulieareenthusiastichomerenovators,withparticularexperienceinclassicalandperiodstylehomes.Juliewillmaintainherjobforthenextsixmonthsbutwillworkparttimeforthebusinessmainlyinadministrationandmarketing.Juliehasanextensivenetworkofacquaintancesthroughheremploymentandmembershipofanumberofassociations.FrankandJuliehaveoneinfantchild,butregularchildcareisprovidedbytheirextendedfamilies.
Itisnotanticipatedthatthebusinesswillemployanystaffotherthantheproprietorswithinthefirstyear.Duringthatyear,mostoftheworkwillbesubcontractedtoreliabletradespeoplewhomFrankknowsthroughhisemploymentintheindustry.
Frankwillhowever,personallyundertaketheplumbingandcloselysupervisetheotherwork.Itisexpectedthatafterthefirstyear,theworkflowwillhaveincreasedandtheemploymentofacarpenter/joinerandasalesassistant/administratorfortheshowroomwillberequired.EmployeeswillreceiveremunerationinaccordancewiththerelevantawardortheminimumemploymentconditionsprescribedbytheWorkplace Relations Act 1996.Inaddition,theywillbeentitledtoparticipateinanincentiveschemebasedonpersonalperformanceandbusinessprofitability.
management succession
Describethearrangementthatwillbemadeforthebusinesstocontinueintheeventofdisabilityoftheproprietors.
Theproprietorsagreethatwithinthefirstsixmonths,itwouldbeimpracticalforJulietocontinuethebusinessintheeventofFrank’sdisability.Frank’sinsurancewouldcoverthenon-recoverableinvestmentsinthebusiness(stock,advertising,tools,etc.),repaymentoftheloanandsubcontractingofcurrentcontracts(approximately$50,000).
JuliealsohasastrongpersonalcommitmenttoensurethatthebusinesswillbecomesuccessfulandhasdecidedthatwhensheresignsfromherpresentpositionafterthefirstyearshewouldcontinuewiththebusinessintheeventofFrank’sdisability.
Hisinsurancewouldcoverthere-financingofthebusinesstosubcontractthemanufacturing,andhiresuitabletradespeoplefortheinstallation.Havingbeencloselyinvolvedwiththedesignandtechnicalaspectsofrenovatingtheirownhomesoveraperiodofeightyears,Juliefeelsconfidentthatshecantakeoveramanagementrole.
Key person insurance
Ascertainthefinancialimpactonthebusiness,ifoneofthekeypeoplecouldnotcontinuetoprovidetheirservicesbecauseofdisability.
BothFrankandJuliewillbeinsuredtocoverthelossoftheircontributiontothebusinessintheeventofdisability.Inthefirstyear,thebusinessandthefamilywillbesubstantiallydependentonFrankandaccordingly,hiscontinuinggoodhealthwillbeinsuredfor$250,000.Julie’srole,albeitasupportiveone,isequallyimportantandhercontinuingcontributionwillbeinsuredforthesameamountasFrank’s.
15SmallBusinessVictoria
Thebusinessplan
Thebusinessplan
Personnel management
Theproprietorsandstaffarethemostimportantresourceofasmallbusinessandgoodarrangementsbetweenthebusinessanditspersonnelisnecessarytoensurethesuccessofabusiness,especiallyinthelongterm.Thefollowingmattersneedtobeconsidered:
• Arrangements between the proprietors TheproprietorshavereachedagreementontheirprincipalobjectivesandtheirrespectiveroleswhicharesetoutelsewhereinthisBusinessPlan.Theyagreetobeboundbythisagreementforthefirstyearofthebusiness.Anyvariationtothismustbebymutualconsentandbeinwriting.
• Involvement of family members.Theproprietors’extendedfamilyhaveagreedtoassistbyprovidingchildcareasandwhenrequired.Ifthebusinessisretainedlongenough,theproprietors’childrenwillbeencouragedtotakeanactiveroleinthebusiness.
• Assessment of staff and subcontractors’ performance. Theperformanceofthestaff,includingtheproprietorsandsubcontractors,inrelationtokeyresultssuchasqualityofworkmanshipandcustomerservice,effectiveuseoftimeandaccuracywillbereviewedeverythreemonthsinthefirstyearofthebusiness.
• Contribution of staff to the development and implementation of business plans.Thestaffwillbeconsultedregularlyinrelationtothebusinessplanningprocess,particularlyintheareasofproduction,customerserviceandmarketing.Thiswillbebothongoingandinformalmeetingseverythreemonthsinthefirstyearofthebusiness.
• Training programme.Skillsmaintenanceanddevelopmentareessentialinbuildingabiggerandbetterbusiness.Thepriorityareasforstafftrainingwillbe:-Buildingandproductiontechniques-Newproducts:fittings,materials,equipment,etc.-Newmachinery:outputs,operation,efficiency,etc.-Marketingskills-Marketanalysis-Selling-Customerservice-Financialskills-Analysingfinancialstatements-Estimatingandpricing
-Preparingcashflowprojections-Comparingactualexpenditure-Bookkeeping
Theproprietorsplantodeveloptheirbasicbusinessskillsinitiallybybothattendingtheeight-weekcourse‘PlanningandStartingaSmallBusiness’attheBoxHillCollegeofTAFE.TheproprietorswilljointheMasterBuildersAssociationandattendrelevantindustrycourses.Theproprietorswillalsoattendtradeshowsandsubscribetobusinessandtrademagazines.
Asthebusinessandstaffdevelopdeficienciesincertainareas,thesewillbeidentifiedandaddressedthroughaformaltrainingstrategy.
16.Qualitycertification
Willqualityassurancecertificationbeundertaken?Ifso,forwhatpurpose,howwillitbeundertakenandatwhatcostintimeandmoney?
CanterburyRenovations,asanewbusiness,willbedevelopedinaccordancewithacomprehensivebusinessplan.Asthereisnoanticipatedrequirementbyclientsintheimmediatefuture,qualityassurancecertificationwillnotbeundertakenatthisstage.However,thisaspectwillbekeptunderreviewasthebusinessdevelops.
16 PlantoSucceed
17.Administrationmanagement information systems
Thebusinesswillmaintainproperandsufficientbusinessrecordstoshowthefinancialpositionofthebusinessonamonthlybasis.Financialrecordswillshowoverallprofitabilityandcashflowandcomparedwithprojectedprofit/lossandcashflowstatementsofthisBusinessPlan.Recordswillalsobekeptforeachjobtoshowitsprogressandcostinlabour,materials,andsubcontractorsandcomparedwiththeestimateforthatjob.
Thefollowingspecificrecordswillbekept:
• Cashbook
• Receiptbook
• Invoices,receivedandsent
• Bankdepositsandstatements
• Pettycashexpenditure
• Wage,WorkCover,superannuation,longserviceleaverecords,andemployeedetails
• Capitalassetsregister
• Materialspurchasedandallocatedtoeachjobortemporarilyasfloatingstock
• Contactdetailsofallenquirers,existingclients,suppliersandsubcontractors
• Individualjobrecordsshowingprogress
• Jobestimates
18.SupportingDocumentationYoushouldprovidecopiesofapplicabledocumentswhichsupportthebusinessplan:
• References,qualifications
• Licencesandpermits
• Businessorcompanyincorporationcertificate
• Partnershipagreement
• Researchdata,promotionalliterature
• Productdrawings,designsorphotos,localitymap
• Projectedprofit/loss-firstyear(see example - Attachment 1)
• Projectedcashflow-firstyear(see example - Attachment 2)
• Projectedprofit/loss-secondyear(see example - Attachment 3)
• Projectedcashflow-secondyear(see example - Attachment 4)
• Statementoffinancialposition(see example - Attachment 5)
17SmallBusinessVictoria
Thebusinessplan
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
mar
Ap
rm
ayJu
nTo
tal
Rev
enue
Ren
ovat
ing
reve
nue
015
,000
20,0
0025
,000
30,0
008,
000
12,0
0030
,000
40,0
0050
,000
32,0
0038
,000
300,
000
Oth
erre
venu
e
Tota
l rev
enue
015
,000
20,0
0025
,000
30,0
008,
000
12,0
0030
,000
40,0
0050
,000
32,0
0038
,000
300,
000
Less
ren
ovat
ing
cost
s
Sub
cont
ract
ors
5,25
07,
000
8,75
010
,500
2,80
04,
200
10,5
0014
,000
17,5
0011
,200
11,6
0010
3,30
0
Mat
eria
ls4,
200
5,60
07,
000
8,40
02,
240
3,36
08,
400
11,2
0014
,000
8,96
010
940
84,3
00
Ren
ovat
ion
wag
es4,
200
4,20
04,
200
4,20
04,
200
4,20
04,
200
4,20
04,
200
4,20
04,
200
4,20
050
,400
Mis
cre
nova
ting
cost
s1,
000
1,00
01,
000
1,00
01,
000
1,00
01,
000
1,00
01,
000
1,00
01,
000
1,00
012
,000
Tota
l ren
ovat
ing
cost
s5,
200
14,6
5017
,800
20,9
5024
,100
10,2
4012
,760
24,1
0030
,400
36,7
0025
,360
27,7
4025
0,00
0
Gro
ss p
rofi
t(5
,200
)35
02,
200
4,05
05,
900
(2,2
40)
(760
)5,
900
9,60
013
,300
6,64
010
,260
50,0
00
Less
ove
rhea
d
exp
ense
s
Ren
t1,
200
1,20
01,
200
1,20
01,
200
1,20
01,
200
1,20
01,
200
1,20
01,
200
1,20
014
,400
Out
goin
gs40
040
080
01,
600
Ban
kIn
tere
st0
7015
020
023
017
013
024
032
034
024
016
02,
250
Mot
orv
ehic
lee
xpen
ses
800
800
800
800
800
800
800
800
800
800
800
800
9,60
0
Adv
ertis
ing
&pr
omot
ion
3,00
02,
000
1,00
050
050
050
050
02,
000
500
500
500
500
12,0
00
Oth
ero
verh
ead
expe
nses
900
900
900
900
900
900
900
900
900
900
900
900
10,8
00
Exp
lora
tory
cos
ts2,
600
2,60
0
(adv
ert./
prom
.exc
lud)
In
itial
cos
ts
9,40
09,
400
Tota
l ove
rhea
d ex
pen
ses
17,9
004,
970
4,45
03,
600
3,63
03,
570
3,53
05,
540
3,72
04,
540
3,64
03,
560
62,6
50
Net
pro
fit
(23,
100)
(4,6
20)
(2,2
50)
450
2,27
0(5
,810
)(4
,290
)36
05,
880
8,76
03,
000
6700
(12,
650
)
Can
terb
ury
Ren
ovat
ions
PR
OJE
CT
ED
PR
OFI
T O
R L
OS
S –
FIR
ST
yE
AR
(exc
ludi
ngG
ST)
Attachment1
18 PlantoSucceed
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
mar
Ap
rm
ayJu
nTo
tal
Cas
h re
ceip
ts
Ren
ovat
ing
reve
nue
15,0
0020
,000
25,0
0030
,000
8,00
012
,000
30,0
0040
,000
50,0
0030
,000
260,
000
Oth
erre
ceip
ts0
Tota
l cas
h re
ceiv
ed0
015
,000
20,0
0025
,000
30,0
008,
000
12,0
0030
,000
40,0
0050
,000
30,0
0026
0,00
0
Cas
h p
aym
ents
Sub
cont
ract
ors
5,25
07,
000
8,75
010
,500
2,80
04,
200
10,5
0014
,000
17,5
0010
,500
12,3
0010
3,30
0
Mat
eria
ls4,
200
5,60
07,
000
8,40
02,
240
3,36
08,
400
11,2
0014
,000
8,40
011
,500
84,3
00
Ren
ovat
ion
wag
es4,
200
4,20
04,
200
4,20
04,
200
4,20
04,
200
4,20
04,
200
4,20
04,
200
4,20
050
,400
Mis
cre
nova
ting
cost
s1,
000
1,00
01,
000
1,00
01,
000
1,00
01,
000
1,00
01,
000
1,00
01,
000
1,00
012
,000
Ren
t1,
200
1,20
01,
200
1,20
01,
200
1,20
01,
200
1,20
01,
200
1,20
01,
200
1,20
014
,400
Out
goin
gs40
040
080
01,
600
Ban
kin
tere
st0
7015
020
023
017
013
024
032
034
024
016
02,
250
Mot
orv
ehic
lee
xpen
ses
400
300
500
500
400
300
200
300
400
500
200
700
4,70
0
Adv
ertis
ing
&pr
omot
ion
3,00
02,
000
1,00
050
050
050
050
02,
000
500
500
500
500
12,0
0
Oth
ero
verh
ead
expe
nses
900
900
900
900
900
900
900
900
900
900
900
900
10,8
00
Exp
lora
tory
cos
ts2,
600
2,60
0
(adv
ert/
prom
.exc
lude
d)
Initi
alc
osts
9,40
09,
400
Cap
italc
osts
12,7
0012
,700
Tota
l pay
men
ts35
,400
19,1
2021
,950
24,2
5027
,330
13,3
1015
,690
29,1
4033
,720
40,9
4027
,140
32,4
6032
0,45
0
Ban
k b
alan
ce
Ope
ning
bal
ance
40,0
004,
600
(14,
520)
(21,
470)
(25,
720)
(28,
050)
(11,3
60)
(19,
050)
(36,
190)
(39,
910)
(40,
850)
(17,9
90)
40,0
00
Plu
sre
ceip
ts0
015
,000
20,0
0025
,000
30,0
008,
000
12,0
0030
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40,0
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,000
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0026
0,00
0
Less
pay
men
ts35
,400
19,12
021
,950
24,2
5027
,330
13,3
1015
,690
29,14
033
,720
40,9
4027
,140
32,4
6032
0,45
0
Clo
sing
bal
ance
4,60
0(1
4,52
0)(2
1,47
0)(2
5,72
0)(1
1.36
0)(1
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0)(3
6,19
0)(3
9,91
0)(1
7,99
0)(2
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0)
Can
terb
ury
Ren
ovat
ions
PR
OJE
CT
ED
CA
SH
FLO
W –
FIR
ST
yE
AR
(mak
eap
prop
riate
allo
wan
cefo
rGS
T)
19SmallBusinessVictoria
Thebusinessplan
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
mar
Ap
rm
ayJu
nTo
tal
Rev
enue
Ren
ovat
ing
reve
nue
20,0
0030
,000
40,0
0050
,000
65,0
0060
,000
15,0
0025
,000
40,0
0040
,000
35,0
0030
,000
450,
000
Oth
erre
venu
e
Tota
l rev
enue
20,0
0030
,000
40,0
0050
,000
65,0
0060
,000
15,0
0025
,000
40,0
0040
,000
35,0
0030
,000
450,
000
Less
ren
ovat
ing
cost
s
Sub
cont
ract
ors
7,00
010
,500
14,0
0017
,500
22,7
5021
,000
5,25
08,
750
14,0
0014
,000
12,2
5010
,500
157,
500
Mat
eria
ls5,
600
8,40
011
,200
14,0
0018
,200
16,8
004,
200
7,00
011
,200
11,2
009,
800
8,40
012
6,00
0
Ren
ovat
ion
wag
es5,
500
5,50
05,
500
5,50
05,
500
6,50
05,
500
5,50
05,
500
5,50
05,
500
5,50
067
,000
Mis
cre
nova
ting
cost
s1,
500
1,50
01,
500
1,50
01,
500
1,50
01,
500
1,50
01,
500
1,50
01,
500
1,50
018
,000
Tota
l ren
ovat
ing
cost
s19
,600
25,9
0032
,200
38,5
0047
,950
45,8
0016
,450
22,7
5032
,200
32,2
0025
,050
25,9
0036
8,50
0
Gro
ss p
rofi
t40
04,
100
7,80
011
,500
17,5
0014
,200
(1,4
50)
2,25
07,
800
7,80
05,
950
4,10
081
,500
Less
ove
rhea
d e
xpen
ses
Ren
t1,
200
1,20
01,
200
1,20
01,
200
1,20
01,
200
1,20
01,
200
2,40
02,
400
2,40
018
,000
Out
goin
gs40
040
080
01,
600
Ban
kIn
tere
st11
010
016
021
024
020
015
00
3070
5030
1,35
0
Mot
orv
ehic
lee
xpen
ses
1,00
01,
000
1,00
01,
000
1,00
01,
000
1,00
01,
000
1,00
01,
000
1,00
01,
000
12,0
00
Adv
ertis
ing
&pr
omot
ion
800
800
800
800
1,69
080
080
02,
000
800
800
800
800
11,6
90
Oth
ero
verh
ead
expe
nses
1,90
01,
900
1,90
01,
900
1,90
01,
900
2,61
02,
900
2,90
02,
900
2,90
02,
900
28,5
10
Tota
l ove
rhea
d
exp
ense
s5,
010
5,00
05,
460
5,11
06,
030
5,10
05,
760
7,50
05,
930
7,97
07,
150
7,13
073
,150
Net
pro
fit
(4,6
10)
(900
)2,
340
6,39
011
,020
9,10
0(7
,210
)(5
,250
)1,
870
(170
)(1
,200
)(3
,030
)8,
350
Can
terb
ury
Ren
ovat
ions
PR
OJE
CT
ED
PR
OFI
T O
R L
OS
S S
EC
ON
D y
EA
R (e
xclu
ding
GS
T)
Attachment3
20 PlantoSucceed
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
mar
Ap
rm
ayJu
nTo
tal
Cas
h re
ceip
ts
Ren
ovat
ing
reve
nue
40,0
0020
,000
30,0
0040
,000
50,0
0065
,000
60,0
0015
,000
25,0
0040
,000
40,0
0035
,000
460,
000
Tota
l cas
h re
ceiv
ed40
,000
20,0
0030
,000
40,0
0050
,000
65,0
0060
,000
15,0
0025
,000
40,0
0040
,000
35,0
0046
0,00
0
Cas
h p
aym
ents
Sub
cont
ract
ors
7,00
010
,500
14,0
0017
,500
22,7
5021
,000
5,25
08,
750
14,0
0014
,000
12,2
5010
,500
157,
500
Mat
eria
ls5,
600
8,40
011
,200
14,0
0018
,200
16,8
004,
200
7,00
011
,200
11,2
009,
800
8,40
012
6,00
0
Ren
ovat
ion
wag
es5,
500
5,50
05,
500
5,50
05,
500
6,50
05,
500
5,50
05,
500
5,50
05,
500
5,50
067
,000
Mis
c.re
nova
ting
cost
s1,
500
1,50
01,
500
1,50
01,
500
1,50
01,
500
1,50
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1,00
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2,90
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(23,
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(27,
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(31,
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(17,1
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20,6
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430
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Clo
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ance
(5,0
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(15,
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(27,
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(31,
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(17,1
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20,6
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00)
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(2,1
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(2,1
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Ren
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21SmallBusinessVictoria
Thebusinessplan
Statement of financial position
Thestatementoffinancialpositionorbalancesheetbringstogethertheresultsfromtheprofitorlossstatementandthecashflowstatementtoidentifytheproprietors’networthandhowthatnetworthismadeup.
ThefirstcolumnshowsthatwhenthebusinessstartedFrankandJuliepaidcashfor$20,000ofsharesinthebusiness,andthenborrowed$20,000fromFrank’sparentswhichgavethebusinessaninitial$40,000cashinthebankattheendofJune1996.Forsimplicity,wehaveassumedtheseactivitieswereundertakenbeforeestablishmentandcommercialcostswereincurred.
Columntwoshowsthatinthefirstyearofoperationallthisinitialcashisusedplusanoverdraftisrequiredtorunthebusiness.Thelossof$12,650meansthatproprietors’equityof$20,000hasbeenreducedto$7,350.
Developingabusinessplaninthismannerhighlightstheinitialrisksassociatedwithstartinganewbusinessandtheimportanceofproprietorshavingsufficientequityinthebusiness.IfthebusinessweretocloseattheendofthefirstyearFrankandJuliewouldonlyhave$7,350leftfromtheir$20,000andtheywouldstilloweFrank’sparentstheir$20,000.
Columnthreeshowsthe$8,350profitinthesecondyearimprovesFrankandJulie’spositionwiththeirequitybuildingbackupto$15,700,whilethebankoverdrafthasbeenreducedfrom$20,450to$2,100.Inthethirdyearofoperationstheproprietors’equityshouldbemorethantheiroriginal$20,000,andthereshouldbecashinthebank.
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Attachment5
30/06/96 30/06/97 30/06/98
Assets $ $ $
Cash 40,000
Debtors 40,000 30,000
Capitalcosts 7,800 7,800
Total assets 40,000 47,800 37,800
Less liabilities
Loan 20,000 20,000 20,000
BankO/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
Retainedearnings (12,650) (4,300)
Total proprietors’ equity 20,000 7,350 15,700
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