A Guide to Develop Business Plan

A Guide to Develop Business Plan

In my previous article in this blog, I shared about strategic planning and a business plan is a sub element of the overall strategic planning process. It fits within the long and medium term plans. The business planning process can be supported by professional advisors and mentors and the use of mentors is reasonably standard approach.  Business plan should consider from the start, how to exit the business (begin with the end in the mind) and detail the type of company to be created, the products and services on offer, a market analysis, management and personal plans, financial and risk issues. A business plan once created is a live document that should be visited regularly to ensure currency and direction.

Why need a business plan?

If you aim to develop a commercial entity, then specific research (“due diligence”) is required beyond the technical knowledge of the proposed enterprise. Depending on skill, knowledge and the scale of investment, a range of analysis can be undertaken. Why is it important to undertake business planning? Business planning is a specific application of planning where the activities of an entity are projected out over time considering a wide range of issues which may impact on the business, with an aim to develop a realistic understanding of the potential of the entity to be successful.     

Conducting business planning and the preparation of a business plan is an expected process required by financial institutions and other stakeholders. Experience has indicate that international aid projects are taking on-board the need for business planning in providing solutions to local communities. A business plan also acts as a communication tool to assist in the alignment of the interests of the various stakeholders as it informs people what is proposed to occur and provide an opportunity to comment or influence company direction.

The business planning process

Development of a business plan should be a component and outcome of the strategic planning process with the business plan providing the detail of how to realize an entities vision and mission. The business planning process allows a series of reality checks on resource and skills available to achieve target goals and objectives and it is often possible to secure the assistance of a mentor or experienced parties. A mentor can be invaluable as a reality check of a proposal and a sounding board for discussing all manner of issues. It is possible that a single mentor may remain relevant over a number of years, but more likely as a business evolves and grows, that mentors will come and go. An important step is to collect thoughts and ideas into an organized set of information and the following are suggested issues address:

a. Company overview

A clear statement is required of what the company represents via the vision and mission statement, corporate ethics statements, OHS policies, etc. It is important at this point to define the target market segment into which the company will provide goods and or services.

b. Product/service overview

The specific product or service provided by a company should be defined in more detail. Focusing on the customer’s perspective, it is important to develop a value proposition statement e.g. details of the goods and /or service to be offered to customers in exchange for remuneration. This can in some case be detailed or presented at a very higher order depending on the range of goods and services on offer. There will remain the need to develop detailed product/service description e.g. specification to allow potential stakeholders to fully understand the business.

c. Physical budget

In order to ensure that the reader has a full understanding of the business, the business plan should include a description of the physical budget or processed used to take raw materials and convert these into good for sales. This can be aided by appropriate photographs and flow charts.

d. Exit strategy

Beginning with a possible end in mind, it is important to consider how persons or an investor would exit a business structure and this will influence many important issues such as the business name. For example, if John X create a business and registers the business name John X and associates, what happens if John X wishes / needs to exit the arrangement? Does the company name change to Ex John and Associates? The development of an exit strategy could include consideration of:

• Wind up: The company simply ceases to exit;
• Outright sales: Many entities are created with objective building a business to sell to another party either at retirement or at an early point in time where the owner ceases all ties with the business.
• Sale and active involvement: The business creator sells part or all of an entity and remains active within the entity e.g. as an employee or Board member
• Sale and passive involvement: The business creator sells part of an entity and retains a share of the company but does not have any ability to direct management.

An important point to consider is that the creator (innovator) of a business has a certain set of skills and drives required to get a business up and functioning. The skills set required to support ongoing management and growth of a company may be very different (e.g. strict routine and reporting) not suited to the more creative entrepreneur.

e. Market Analysis

Marketing is a systematic approach to ensure that the products or services on offer match the demands of the customer, this adds a layer of target specificity to selling (in the absence of market analysis selling is selling what you have, whereas marketing aims to have what you can sell). A market analysis should be conducted considering a competitor analysis and other threats e.g. steel frame houses. It is possible to focus on a broad spectrum of the market or to specialise into a niche market. Once a target market has been identified, an appropriate pricing structure must be determined and a route to market developed.

f. Management and personal plan

It is important to recognize that the needs of a company will change over time, and any plan must reflect this potential evolution. An entity may choose to deploy capital or employ labour (e.g. you could hand weed a plantation using local village labour or purchase a tractor with appropriate implements to remove the impact of vegetation on the planted crop tree). It is likely that as entity evolves, labour requirements will change (e.g. at start up all accounts could be managed by business owner and with an increase in scale and complexity, specialist accounting service could be required). A business owner must decide whether to employee staff directly or use contractors (either short term appointment or over a longer duration). Care is needed to understand the implications of labour arrangements and at what point an employee / employer relationships is created. A plan will be required to manage recruitment, training and retaining staff to ensure that the business has access to the right people. Consideration is required of the cost of each employee including superannuation, OHS issues (e.g. personal protecting clothing), leave and other entitlements.

g. Financial projection

Survival in business is often contingent on maintaining positive a cash-flow and an often quoted statement is that cash-flow is king and a business plan should include a detailed assessment of expenses and revenues (a budget) likely to occur over time, as with most element of a business plan, yhis is will change over time. Sales of products and services will generate gross revenues as below:

 How can you estimate the likely physical quantity of sales, particularly where there is a lack of sales history? The answer is very specific to each business/market and often requires and intelligent / lateral thinking approach. Of equal importance is the need to determine the likely expense incurred to create the products and / or services sold, see below:

Again, there are a number of challenges in predicting the level of expenses incurred to generate a product.

h. Risk analysis

A wide range of action, omissions, and events can damage a business and the specific agents can be entity specific e.g. exchange risk for an exporting entity or very broad. A detailed assessment is required of the risks faced by an entity.

i. Communication

The business plan should address communications by defining the broad stakeholder groups and the communications strategies to be used to pass on information to each group. The document should include a communications plan as an important component of the document.   

Source article: F.M. B by B.M Jenkin                   

                 

Strategic Planning for a Business

Strategic Planning for a Business

How you will start your own business? Don’t have any idea? If you do so, it’s like you set a journey and you lost the way and never get your destination. So, what you need is a journey plan to aim your destination. Same like if you want start a business. Because success and survival in business depend greatly on the ability of an entity to plan and control business activities. What you need is a strategic planning. It is a fundamental and dynamic process that must commence with an entity having a thorough and complete understanding of where they wish to be in the market. An entity must determine the actual purpose of their existence and develop succinct vision and mission statement.  From such high order statement flow the mechanisms by which an entity would plan to achieve the target outcomes.

What if we have bad plans or lack of a plan of action?

This is the fundamental question that should be considered the outcome. In term of organizing a BBQ party it could be that the function does not have adequate condiments to address the flavour the sausages and in the case of a Clan in Western Province (PNG), failure to plan strategic food reserves such as Sago palm can be catastrophic in term of the outcome of a drought of the failure of the current season’s garden crops. Planning and strategy are interlinked. A classic text on strategy that remains relevant since it was produced around 500BC is Sun Tzu’s The Art of War and it has been adapted to a wide range of applications to provide structures for addressing a range of issue (it is required reading in many courses both military and civilian alike).

Let’s go deep with what is Strategic Planning is?

Business development and management should be supported by a range of plans and the most fundamental is the strategic plan. Strategic planning is an organizational planning process which usually results in the element as below:

The following outlines an overview of the elements of strategic planning

• ·   Vision statement: an aspirational description of what an organisation would like to achieve or accomplish in the mid-term or long-term, intended to serve as a clear guide for choosing current and future courses of action.
• ·    Mission statement: it is a succinct written declaration of a firm’s core purpose and focus which normally remain unchanged, whereas business strategy and practices may frequently be altered to adapt to the changing circumstance. It is used to communicate the firm’s purpose to all stakeholder groups (internal and external) and to guide employees in their contribution towards company success. A mission statement is different to a vision statement in that the former is the cause and the latter is the effect; a mission is something to be accomplished whereas a vision is something to be pursued for that accomplishment. Properly crafted mission statements serve as filters to:

o   Separate what is important from what is not

o   Clearly state which markets will be served and how

o   Communicate a sense of intended direction to the entire organisation

• ·     Goals: Summarized by the phrase “a dream with a deadline”, a goal is an observable and measurable end result having one or more objective to be achieved within a more or less fixed timeframe. In comparison, a purpose is an intention (internal motivation state) or mission. The question, “has the goal been achieved?” can always be answered with either “yes” or “no” whereas a purpose, is not achieved but instead is pursued every day.
• ·    Objectives: it is an end or outcome that can be reasonably achieved within an expected timeframe and with available resource. In general, an objective is broader in scope than a goal, and may consist of several individual goals. Objectives are basic tools underlying all planning and strategic activities that serve as basis for policy and performance appraisals, in particular when they include the development of specific Key Performance Indicators (KPI’s).
• ·    Situation analysis: an analysis is conducted of the key environmental variable in which a business operates:

o   PEST: an analysis in which Political-legal (e.g. government stability, spending, taxation, etc.); Economic (e.g. inflation, interest rates, unemployment, etc.); Socio-cultural (e.g. demographic, education, income distribution etc.); and Technological (e.g. knowledge generation, conversion of discoveries into products, rates of obsolescence, etc.) factors are examined to plan an organisation long-term plans.

o   SWOT: Strengths, Weakness, Opportunities and Threats (SWOT) analysis examines internal strengths and weakness of an organization and external opportunities and threats faced by it to plan an appropriate strategy.

• ·     Plans: A series of time based plans are required to be prepared with each supporting and reflecting the other:

o   Long-term plans: where an entity would like to be in greater than 5 years time

o   Medium-term plans: specific activities over 1- to  years

o   Annual plans: the activities to be undertaken over a 12 month period

• Monitoring and review: the monitoring and review process of supervising activities underway aims to ensure that they are progressing as expected and that they are on-schedule in meeting objectives and performance targets. Performance targets should be measurable and achievable and where the targets are assessed at other levels within an entity, the result should be available to the company stakeholders in a timely manner to provide immediate feedback to allow for corrective action.

Source of article: FMB by B.M.Jenkin

The wholesales price indices of Indonesia: August 2014

Press Release BPS (Badan Pusat Statistik-Statistics Indonesia)

This article is mainly based on data/information from BPS Press Release: No. 69/09/Th. XVII, September 1th, 2014

 

August 2014 wholesales price increase 0.17 percent

Price update of big trading/wholesale/agent in August 2014

Based on BPS observation, the Wholesale  Price Indices (WPI) of non oil and gas  in August 2014 is 128.34 or increase 0.17 percent from WPI in July with 128.13. The increasing happened in all sectors and goods groups except for non oil and gas export that decrease for 0.83 percent. Agriculture sectors increase by 1.30 percent, mining & quarrying sector  0.18 percent, industry sector 0.27 percent, and non oil and gas import group 0.14. Therefore, WPI changing during 2014 is 5.13 percent and WPI changing year-on-year is 10.00 percent. Some commodities that  get price increased in August i.e. mustard, cucumber, chili, tuna, fish salted, leather, import electricity tools/machine and export cacao/chocolate.

In August 2014, agriculture sector is the biggest contributor in WPI changing by 0.14 percent. The mining and  quarrying sector contributed 0.01 percent, industry sector 0.14 percent, non oil and gas import group 0.02 percent, whilst non oil and gas export group contribute negatively by 0.14 percent. See table 1.

The WPI of building / construction that consist of 5 types of construction, in August, generally  faced increasing by 0.40 percent compared to previous month. In August 2014, all types of construction have indices increasing. Housing and non housing group has highest increasing, i.e.  0.44 percent. General work for agriculture group increased by 0.30 percent, general work for road, bridge, and harbour 0.35 percent, building and electrical installation, gas, drinking water and communication 0.40 percent and other buildings 0.36 percent. See table 2.

Building/Construction Group

WPI of building/construction in August 2014 increased 0.40 percent, i.e. from 121.00 in July 2014 to be 121.49 in August 2014. The WPI increasing of building/construction caused by the increasing of housing and non housing group that contribute 0.21 percent, general work for agriculture 0.02 percent, general work for road, bridge and harbour 0.07 percet,  building and electrical installation, gas, drinking water and communication 0.07 percent and other buildings 0.03 percent. See table 2.

Building/construction materials that have price increasing in August are building material of aluminium by 0.79 percent, pipes and their accessories 0.74 percent, decorative  stone and stone building 0.59 percent, other iron 0.53 percent and sand 0.53 percent. See table 3.

 

Price update of big trading/wholesale/agent in July 2014

Based on study of BPS, in international trading on July 2014, WPI of export and import of goods group, each of them decreased by 0.23 percent and 0.17 percent compared previous month. Oil and gas commodities that have price decreasing in July 2014 are oil import , products from import crude oil, export LNG and oil export. WPI increased 0.50 percent from 132.81 in June 2014 to be 133.48 in July 2014. Agriculture sector is the biggest contributor of WPI increasing by 0.31 percent. Industry sector contributed 0.27 percent, while export and import group, both of them contributed negatively by 0.04 percent and 0.04 percent. Mining and quarrying sector did not contribute significantly. Therefore, the inflation of wholesales level during 2014 up to 3.66 percent and inflation of wholesale year-on-year achieved 11.99 percent. See table 4.

 

Raw material

WPI of raw material in July 2014 increased 0.59 percent compared pervious month, i.e. from 128.04 in June 2014 to be 128.79 in July 2014. The WPI increasing of raw material is caused by increasing of industry raw material that contribute 0.38 percent. See table 5.

Consumption material

WPI of consumption material in July 2014 increased 1.20 percent compared to previous month, from 132.67 in June 2014 to be 134.25 July 2014. The increasing of WPI of consumption material is mainly caused by the increasing of consumption material in agriculture sector i.e. 0.71 percent. See table 5.

Capital material

In July 2014, WPI of capital material increased by 0.03 percent i.e. from 110.06 in June 2014 to be 110.09 in July 2014. Capital material group in import sector is majority contributor of indices changing of capital material by 0.02 percent. Capital material of industry contributed 0.01 percent, while agriculture sector and mining and quarrying sector did not contribute significantly. See table 5.