Strongpreneur#Starting A Business
May 13, 2019 163
Strongpreneur#Starting A Business
May 13, 2019 163
The introductory pages of the business plan aim to indicate the identity of the business, the management team a description of the product or services of the venture, the market and potential customers and the major competitors.
Names qualifications, age, experience and position of members of the management team including the entrepreneur. The purpose of this is to highlight the competencies and skills available to the business venture to execute its programmes. It is useful therefore to provide information on the business background entrepreneur and other key staff especially as they relate to the business venture being reviewed.
Describe the product or service of the business venture in terms of
What are the personal aims of the entrepreneur for starting a business? Entrepreneurs are unique individuals and so are their personal aims for starting a business. Generally, some start their businesses to earn a living and support their families; others aim to have independence and autonomy. Yet others want to build a business that will enable them to pursue an interest, become wealthy and famous. A first step in planning a business is to be clear about the personal aims you want to achieve in starting a business.
Business aims are different from personal aims. But business aims are related to the personal aims of the entrepreneur in that they support and make the achievement of the latter possible. Business aims refer to the unique reason for the existence of the business enterprise – the customer needs it is set up to satisfy and how the needs will be met. Business aims also indicate what the business wants to be to its customers, investors, employees, and the community in which it operates. They create a picture of what the business will be in the distant future. Two businesses may operate in the same industry but one will be different from the other in terms of the specific customer needs it intends to focus upon, product offering, cost, quality reliability, etc.
A small restaurant may have one of the following aims:
It takes a little bit of time and reflection to state as crisply as possible the aims of the business enterprise that are lofty and capable of inspiring others to achieve them. Write down what this business could want to be to its employees or to its investors.
Business goals state the direction in which the business will go in the next five or more years. Setting goals takes into account the entrepreneur’s assessment of the business environment and the resources at his disposal.
Goals can be set in the area of:
Objectives are goals stated in short specific and measurable terms. They are targets to be met in annual budgets or a specified period of time. Objectives are set for the various operational units such as product development, distribution, inventory, training, etc. Achievement of short-term objectives makes the attainment of business goals and personal goals possible.
Examples of objects are:
The marketing plan is based upon the market analysis and business goals earlier discussed. It contains the following:
This is a statement of the customers the firm wants to serve and the benefits it will provide to meet the needs of its customers.
You may wonder if it is possible to forecast what quantities of the product the firm can sell during the plan period or the sales revenue that can be generated during the period. It is indeed possible to estimate your potential sales if you have a good understanding of the market and your potential customers as well as your firm’s main strength and weakness. Your sales forecast is, in fact, the basis of subsequent marketing activities of the firm.
We can illustrate the process of undertaking a sales forecast with an example of a small business center which provides photocopying, type-setting, project binding, and snacks to students and staff in a University community. This business enterprise will need to estimate its potential sales revenue from the different services month by month, quarterly and for the year. First, it can obtain information on the amount spent by individual student and staff on photocopying per semester. With this information, the possible expenditure on photocopying by students and staff in the university is estimated. Next, the proportion of the total of such expenditure that the firm can attract is estimated, given the competition and the unique advantages the business enterprise has. This is its potential market share of the photocopying market in the university.
This process is repeated for the other services and the sales forecast of the firm is obtained.
These are specific statements of what the entrepreneur wants to achieve in key marketing areas such as overall sales increase, product, distribution, price, and promotion. Objectives can be set in these areas but it important to note that the more the number of objectives, the less that can be achieved on the whole. It is wise therefore to focus on those areas where significant impact can be made.
Objectives can be stated as follows:
The marketing objectives can be achieved through a variety of different action programs. The entrepreneur reviews the possible actions that can be taken and selects those that are most viable given the firm’s strengths and weaknesses. List what will be done, when it will be done during the plan period and by whom. For example, the possible action programs open to a small restaurant whose objective is to increase the number of patrons by 20% include:
Each selected marketing action is costly in terms of:
This should be objective and verifiable measures such as:
A production or operations plan is based on the target sales of the product over a period of time. The target sales for the period (say one quarter) is the broken down to target sales per month, and per week as necessary. For example, if the target sales/quarter is 100,000 units, this may be broken down as follows:
Month 1 – 30,000 units
Month 2 – 35,000 units
Month 3 – 45,000 units
Production in month 1 is then broken down to weekly production as follows:
Week 1 – 5000 units
Week 2 – 8000 units
Week 3 – 8000 units
Week 4 – 9000 units
Total – 30,000 units
Given this schedule, the production plan specifies:
At the early stages of the business, the entrepreneur or owner/manager is involved in all the operational activities of the enterprise and takes all the key decisions. Job descriptions are loosely defined as employees are often required to perform any duty need to achieve operational targets. The reporting relationships are flexible. All of these make it possible for the small business enterprise to respond quickly to opportunities and threats that may arise from the environment. Indeed this flexibility is the hallmark of small businesses and accounts for their adaptability and speed in responding to new situations.
Organizational and human resources plan is based on the need for the small business to remain flexible and at the same time able to achieve its major objectives.
To develop the plan involves the following activities:
(a) The Entrepreneur:
(i) As a Manager: Compensation package that will enable him/her meet his/her personal expenses and sustain a preferred lifestyle.
(ii) As an Investor: A satisfactory return on his/her investment
(b) Employees: Compensation packages (basic salary, allowances for housing, transportation, etc) that will enable the enterprise to attract and retain the caliber of employees desired.
(c) Members of the Board of Directors: This is the number of fees to be paid.
|Position||No||Basic Salary||Allowances||Pension/NSITF Contribution||Total|
Head, Administration, and Finance
The first step in this process is to identify and list the various assets required in the business venture. Then the estimated cost of each item is determined. Information on costs may be obtained from various sources including a quotation from equipment suppliers Estate Surveyors or Quantity Surveyors, Engineers, etc.
In a typical startup small business, the capital expenditure list may include:
Most businesses fail due to the inadequacy of funds to execute the day-to-day operations of the business. Small businesses are particularly vulnerable if working capital is inadequate. The estimation of working capital needs is of great importance to the entrepreneur.
Working capital in accounting parlance is current assets less current liabilities. In practical terms, current assets translate to be:
Current liabilities include:
In estimating working capital, therefore, careful consideration should be paid to:
Cash is the livelihood of your business. Cash flows into the business from various sources. Before operations begin, the owners of the business inject their own investment (owners’ equity) in the form of cash into the business. Cash may also flow into the business in the form of loans, sales, interest from deposits at the bank, sale of assets, etc.
Cash flows out of the business when payments are made for items purchased. Examples of such items are land, plant, and equipment, furniture, vehicles, raw materials, etc. Cash also flows out of the business when payments are made for rents, wages arid salaries, electricity, and telephone bills, taxes, rates, etc.
For the business to survive, the pattern of this inflow and outflow of cash must be understood and managed carefully so that:
Without cash flow forecast, the business can mil into serious difficulties because the owner/manager of the business did not anticipate that sufficient cash will not be available to purchase the raw materials needed to fill the orders of customers,
Preparing a cash flow forecast requires you to identify the sources of cash inflow and their timing. Also, you will need to identify all the cash payments that must make and when. By matching the inflow of cash against the outflow of cash month by month, the periods in which cash deficit or cash surplus will be experienced can be known.
Broadly, there are two ways to prepare a projected income statement. The first is to begin from a sales forecast and then work down through the various cost items to arrive at the net profit. The second is for the entrepreneur to have a target net profit, which he/she considers to be:
Starting from a sales forecast, the step-by-step process of projecting the income statement involves:
A balance sheet shows the financial conditions of a business enterprise at a point in time. It shows ire relationships between the assets owned by the business and the liabilities owed to others, inducing the owners of the business. The balance sheet enables the entrepreneur to determine whether or not the financial condition of the business is healthy.
The balance sheet projections are developed from the data in the cash flow projections and profit and loss statement.
It is useful for the entrepreneur to know the point of sales at which revenue from sales is just enough to cover business expenses. This point is called the break-down point. At this point, the business is neither making a profit or sustains a loss.
The break-even point is important because the entrepreneur then knows the point to which sales can drop for the firm to sustain a loss. Hence he/she strives to drive sales beyond this point. The further it is away from the break-even point, the higher the profit expected.
Break-even (in sales) is computed using the following general formula:
(i) Total Fixed Costs/Gross Margin %
(ii) Total Fixed Costs/Contribution per unit
In the second formula, contribution per unit is defined as the unit selling price less variable cost per unit.
It is possible to assess the risk associated with the business given the entrepreneur’s knowledge of the break-even point. To do this, three alternative scenarios of sales performance are projected. The first is to forecast sales on the assumption that the worst of conditions occur in the first year. In the second, the sales forecast is based on the occurrence of the most likely conditions and the third assumes that the most optimistic conditions occur.
By computing the breakdown point in each case, you can see how environmental conditions are likely to affect your business performance.
If you recognize the risk what can you do about it? You can re-evaluate the different elements used in your break-even analysis. For example, is it possible to reduce your fixed costs? What happens if the selling price is increased by say 10%? In what ways can variable cost be reduced? Can you find a cheaper source of supply or cheaper materials? For each course of action considered feasible, the earnings projections are revised and become the basis of action during implementation.
List the major activities that must be executed.
Estimate the time it will take to execute giving the beginning and ending dates.
Map the activity and time schedule using the format below.
|Activities||Time (Month, Quarter or Year)|
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