Business Plan part 5

8. Operational Plan
Explain the daily operation of the business, its location, equipment, people, processes, and surrounding environment.
Production
How and where are your products or services produced?
Explain your methods of:
•    Production techniques and costs
•    Quality control
•    Customer service
•    Inventory control
•    Product development
Location
What qualities do you need in a location? Describe the type of location you’ll have.
Physical requirements:
•    Amount of space
•    Type of building
•    Zoning
•    Power and other utilities
Access:
Is it important that your location be convenient to transportation or to suppliers?
Do you need easy walk-in access?
What are your requirements for parking and proximity to freeway, airports, railroads, and shipping centers?
Include a drawing or layout of your proposed facility if it is important, as it might be for a manufacturer.
Construction? Most new companies should not sink capital into construction, but if you are planning to build, costs and specifications will be a big part of your plan.
Cost: Estimate your occupation expenses, including rent, but also including maintenance, utilities, insurance, and initial remodeling costs to make the space suit your needs. These numbers will become part of your financial plan.
What will be your business hours?
Legal Environment
Describe the following:
•    Licensing and bonding requirements
•    Permits
•    Health, workplace, or environmental regulations
•    Special regulations covering your industry or profession
•    Zoning or building code requirements
•    Insurance coverage
•    Trademarks, copyrights, or patents (pending, existing, or purchased)
Personnel
•    Number of employees
•    Type of labor (skilled, unskilled, and professional)
•    Where and how will you find the right employees?
•    Quality of existing staff
•    Pay structure
•    Training methods and requirements
•    Who does which tasks?
•    Do you have schedules and written procedures prepared?
•    Have you drafted job descriptions for employees? If not, take time to write some. They really help internal communications with employees.
•    For certain functions, will you use contract workers in addition to employees?
Inventory
•    What kind of inventory will you keep: raw materials, supplies, finished goods?
•    Average value in stock (i.e., what is your inventory investment)?
•    Rate of turnover and how this compares to the industry averages?
•    Seasonal buildups?
•    Lead-time for ordering?
Suppliers
Identify key suppliers:
•    Names and addresses
•    Type and amount of inventory furnished
•    Credit and delivery policies
•    History and reliability
Should you have more than one supplier for critical items (as a backup)?
Do you expect shortages or short-term delivery problems?
Are supply costs steady or fluctuating? If fluctuating, how would you deal with changing costs?
Credit Policies
•    Do you plan to sell on credit?
•    Do you really need to sell on credit? Is it customary in your industry and expected by your clientele?
•    If yes, what policies will you have about who gets credit and how much?
•    How will you check the creditworthiness of new applicants?
•    What terms will you offer your customers; that is, how much credit and when is payment due?
•    Will you offer prompt payment discounts? (Hint: Do this only if it is usual and customary in your industry.)
•    Do you know what it will cost you to extend credit? Have you built the costs into your prices?
Managing Your Accounts Receivable
If you do extend credit, you should do an aging at least monthly to track how much of your money is tied up in credit given to customers and to alert you to slow payment problems.
You will need a policy for dealing with slow-paying customers:
•    When do you make a phone call?
•    When do you send a letter?
•    When do you get your attorney to threaten?
Managing Your Accounts Payable
You should also age your accounts payable, what you owe to your suppliers. This helps you plan whom to pay and when. Paying too early depletes your cash, but paying late can cost you valuable discounts and can damage your credit. (Hint: If you know you will be late making a payment, call the creditor before the due date.)
Do your proposed vendors offer prompt payment discounts?

9. Startup Expenses and Capitalization
You will have many startup expenses before you even begin operating your business. It’s important to estimate these expenses accurately and then to plan where you will get sufficient capital. This is a research project, and the more thorough your research efforts, the less chance that you will leave out important expenses or underestimate them.
Even with the best of research, however, opening a new business has a way of costing more than you anticipate. There are two ways to make allowances for surprise expenses. The first is to add a little “padding” to each item in the budget. The problem with that approach, however, is that it destroys the accuracy of your carefully wrought plan. The second approach is to add a separate line item, called contingencies, to account for the unforeseeable. This is the approach we recommend.
Talk to others who have started similar businesses to get a good idea of how much to allow for contingencies. If you cannot get good information, we recommend a rule of thumb that contingencies should equal at least 20 percent of the total of all other start-up expenses.
Explain your research and how you arrived at your forecasts of expenses. Give sources, amounts, and terms of proposed loans. Also explain in detail how much will be contributed by each investor and what percent ownership each will have.

Business Plan part 4

7. Marketing Plan
Product
Describe in depth your products or services (technical specifications, drawings, photos, sales brochures, and other bulky items belong in Appendices).
What factors will give you competitive advantages or disadvantages? Examples include level of quality or unique or proprietary features.
List all of your major products or services.
For each product or service:
•    Describe the most important features. What is special about it?
•    Describe the benefits. That is, what will the product do for the customer?
Note the difference between features and benefits, and think about them. For example, a house that gives shelter and lasts a long time is made with certain materials and to a certain design; those are its features. Its benefits include pride of ownership, financial security, providing for the family, and inclusion in a neighborhood. You build features into your product so that you can sell the benefits.
What after-sale services will you give? Some examples are delivery, warranty, service contracts, support, follow-up, and refund policy.
Pricing
What are the pricing, fee, or leasing structures of your products or services?
Explain your method or methods of setting prices. For most small businesses, having the lowest price is not a good policy. It robs you of needed profit margin; customers may not care as much about price as you think; and large competitors can under price you anyway. Usually you will do better to have average prices and compete on quality and service.
Does your pricing strategy fit with what was revealed in your competitive analysis?
Compare your prices with those of the competition. Are they higher, lower, the same? Why?
How important is price as a competitive factor? Do your intended customers really make their purchase decisions mostly on price?
What will be your customer service and credit policies?
Promotion
How will you get the word out to customers?
Advertising: What media, why, and how often? Why this mix and not some other?
Have you identified low-cost methods to get the most out of your promotional budget?
Will you use methods other than paid advertising, such as trade shows, catalogs, dealer incentives, word of mouth (how will you stimulate it?), and network of friends or professionals?
What image do you want to project? How do you want customers to see you?
In addition to advertising, what plans do you have for graphic image support? This includes things like logo design, cards and letterhead, brochures, signage, and interior design (if customers come to your place of business).
Should you have a system to identify repeat customers and then systematically contact them?
Promotional Budget
How much will you spend on the items listed above?
Before startup? (These numbers will go into your startup budget.)
Ongoing? (These numbers will go into your operating plan budget.)
Proposed Location
Describe what you want and need in a location. Many startups run successfully from home for a while.
You will describe your physical needs later, in the Operational Plan section. Here, analyze your location criteria as they will affect your customers.
Is your location important to your customers? If yes, how?
If customers come to your place of business:
Is it convenient? Parking? Interior spaces? Not out of the way?
Is it consistent with your image?
Is it what customers want and expect?
Where is the competition located? Is it better for you to be near them (like car dealers or fast food restaurants) or distant (like convenience food stores)?
Distribution Channels
How do you sell your products or services?
Retail
Direct (mail order, Web, catalog)
Wholesale
Your own sales force
Agents
Independent representatives
Bid on contracts 
Sales Forecact
Now that you have described your concept, customers, markets, and marketing plans in detail, it’s time to attach some numbers to your plan. Use a sales forecast spreadsheet to prepare a month-by-month projection. The forecast should be based on your historical sales, the marketing strategies that you have just described, your market research, and industry data, if available.
You may want to do two forecasts: 1) a "best guess", which is what you really expect, and 2) a "worst case" low estimate that you are confident you can reach no matter what happens.
Remember to keep notes on your research and your assumptions as you build this sales forecast and all subsequent spreadsheets in the plan. This is critical if you are going to present it to funding sources.

Business Plan part 3

4. Strategy
Describe where you plan for the business to operate i.e. where will you play?
•    Geographic location?
•    Customer niche or mass market?
Describe how you plan to win in this market i.e. how will you create unique and valuable position, involving a different set of activities
•    What is unique about the business i.e. how is the offering different from that of competitors?
•    What is the value for the customers? Describe the value proposition for the customer?

5. Business Model
Revenue sources
What are the sources of revenue for the business?
o    Single or multiple revenue streams?
o    Payment terms – upfront, over a period of time or post delivery?
Cost drivers
What are the cost drivers for the new business?
o    Major costs incurred to generate revenue?
o    Nature of costs – fixed, variable or semi-variable?
o    Payment terms – upfront, over a period of time or post delivery?
Capital investment
What size capital investment is required to launch and sustain the business?
o    To sustain a positive cash balance?
o    To make profit?
Critical success factors
What are the critical success factors for this business?
o    Identify the issues that will determine the success or failure of the business?
6. Team - Management and Organization
Who is behind this business? List the founders including their qualifications and experience.
Who will manage the business on a day-to-day basis? What experience does that person bring to the business? What special or distinctive competencies? Is there a plan for continuation of the business if this person is lost or incapacitated?
If you’ll have more than 10 employees, create an organizational chart showing the management hierarchy and who is responsible for key functions.
Include position descriptions for key employees. If you are seeking loans or investors, include resumes of owners and key employees.
Professional and Advisory Support
List the following:
•    Board of directors
•    Management advisory board
•    Attorney
•    Accountant
•    Insurance agent
•    Banker
•    Consultant or consultants
•    Mentors and key advisors

Business Plan part 2

In the last post we have written down the general overview of the business plan. Now we will elaborate further.

1. Executive Summary

Write this section last.
We suggest that you make it two pages or fewer.
Include everything that you would cover in a five-minute interview.
Explain the fundamentals of the proposed business:  What will your product be? Who will your customers be? Who are the owners? What do you think the future holds for your business and your industry?
Make it enthusiastic, professional, complete, and concise.
If applying for a loan, state clearly how much you want, precisely how you are going to use it, and how the money will make your business more profitable, thereby ensuring repayment.

    2.  General Company Description
What business will you be in? What will you do?
Mission Statement: Many companies have a brief mission statement, usually in 30 words or fewer, explaining their reason for being and their guiding principles. If you want to draft a mission statement, this is a good place to put it in the plan, followed by:
Company Goals and Objectives: Goals are destinations—where you want your business to be. Objectives are progress markers along the way to goal achievement. For example, a goal might be to have a healthy, successful company that is a leader in customer service and that has a loyal customer following. Objectives might be annual sales targets and some specific measures of customer satisfaction.
Business Philosophy: What is important to you in business?
To whom will you market your products? (State it briefly here—you will do a more thorough explanation in the Marketing Plan section).
Briefly describe your industry.  Is it a growth industry? What changes do you foresee in the industry, short term and long term? How will your company be poised to take advantage of them? (Note – you will do an in-depth industry and market analysis in the next section)
Describe your most important company strengths and core competencies. What factors will make the company succeed? What do you think your major competitive strengths will be? What background experience, skills, and strengths do you personally bring to this new venture?
Legal form of ownership: Sole proprietor, Partnership, Closed Corporation, Pty (Ltd), Section 21 Co.?  Why have you selected this form?


   3.  The Industry, Market and the Opportunity

Describing the opportunity
Describe the gap that exists in the market. What has given rise to this gap and how can it be filled?
Describing the industry and the market
A deeper understanding an opportunity involves systematic research. It is very dangerous to assume that you already know about your intended market. You need to do market research to make sure you’re on track. Use the business planning process as your opportunity to uncover data and ensure that there is a realistic gap in the market for your product or service and that you can be competitive in providing that product or service. Your time will be well spent.
Market research
There are two kinds of market research: primary and secondary.
Secondary research means using published information such as industry profiles, trade journals, newspapers, magazines, census data, and demographic profiles. This type of information is available in public libraries, industry associations, chambers of commerce, from vendors who sell to your industry, and from government agencies.
Start with your local library. Most librarians are pleased to guide you through their business data collection. You will be amazed at what is there. There are more online sources than you could possibly use. Your chamber of commerce has good information on the local area. Trade associations and trade publications often have excellent industry-specific data.
Primary research means gathering your own data. For example, you could do your own traffic count at a proposed location, use the yellow pages to identify competitors, and do surveys or focus-group interviews to learn about consumer preferences.  Professional market research can be very costly, but there are many books that show small business owners how to do effective research themselves.
In your market analysis, be as specific as possible; give statistics, numbers, and sources. The marketing plan will be the basis, later on, of the all-important sales projection.
Facts to communicate about the about the market:
•    What is the total size of your market?
•    What percent share of the market will you have? (This is important only if you think you will be a major factor in the market.)
•    Current demand in target market.
•    Trends in target market—growth trends, trends in consumer preferences, and trends in product development.
•    Growth potential and opportunity for a business of your size.
Industry Analysis
Analysis of barriers to entry:
    What barriers to entry do you (and others) face in entering this market? Some typical barriers are:

• High capital costs
• High production costs
• High marketing costs
• Consumer acceptance and brand recognition
• Training and skills
• Unique technology and patents
• Unions
• Shipping costs
• Tariff barriers and quotas

   How will you overcome the barriers?

Analysis of buyer power:
   Who are the buyers and do they have significant power or influence over the prices they pay?
   Do they have significant choice when buying the product or service?
Analysis of supplier power
   Who are the suppliers and do they have significant power or influence over the prices they charge.
   Are there a limited number of suppliers
Analysis of substitutes
   Are there substitute offerings for the product or service? What is the likelihood that customers will switch to the substitute? i.e. will you have important indirect competitors? (For example, video rental stores compete with theaters, although they are different types of businesses.)
Analysis of competitive rivalry
   What products and companies will compete with you?
List your major competitors:
Will they compete with you across the board, or just for certain products, certain customers, or in certain locations?
How will your products or services compare with the competition?
Use the Competitive Analysis table below to compare your company with your two most important competitors. In the first column are key competitive factors. Since these vary from one industry to another, you may want to customize the list of factors.
In the column labeled Me, state how you honestly think you will stack up in customers' minds. Then check whether you think this factor will be a strength or a weakness for you. Sometimes it is hard to analyze our own weaknesses. Try to be very honest here. Better yet, get some disinterested strangers to assess you. This can be a real eye-opener. And remember that you cannot be all things to all people. In fact, trying to be causes many business failures because efforts become scattered and diluted. You want an honest assessment of your firm's strong and weak points.
Now analyze each major competitor. In a few words, state how you think they compare.
In the final column, estimate the importance of each competitive factor to the customer.  1 = critical; 5 = not very important.
Now, write a short paragraph stating your competitive advantages and disadvantages.
Changes affecting the industry
How could the following affect your company?

• Change in technology
• Change in government regulations
• Change in the economy
• Change in your industry

Business plan for a Startup part 1

The business plan consists of a narrative and several financial worksheets. The narrative template is the body of the business plan. It contains more than 150 questions divided into several sections. Work through the sections in any order that you like, except for the Executive Summary, which should be done last. Skip any questions that do not apply to your type of business. When you are finished writing your first draft, you’ll have a collection of small essays on the various topics of the business plan. Then you’ll want to edit them into a smooth-flowing narrative.
The real value of creating a business plan is not in having the finished product in hand; rather, the value lies in the process of researching, thinking about and discussing your business in a systematic way. The act of planning helps you to think things through thoroughly, study and research.  It enables you to look at your ideas critically. It takes time now, but avoids costly, perhaps disastrous, mistakes later.
This business plan is a generic model suitable for all types of businesses. However, you should modify it to suit your particular circumstances. Before you begin, review the section titled Refining the Plan, found at the end. It suggests emphasizing certain areas depending upon your type of business (manufacturing, retail, service, etc.). It also has tips for fine-tuning your plan to make an effective presentation to investors or bankers. If this is why you’re creating your plan, pay particular attention to your writing style. You will be judged by the quality and appearance of your work as well as by your ideas.
It typically takes several weeks to complete a good plan. Most of that time is spent in research and re-thinking your ideas and assumptions. But then, that’s the value of the process. So make time to do the job properly. Those who do never regret the effort. And finally, be sure to keep detailed notes on your sources of information and on the assumptions underlying your financial data.
The table of contents should have the following topics:

• Excecutive summary
• General company description
• The Industry, Market and Opportunity
• Strategy
• Business Model
• Team - Management and Organization
• Marketing Plan
• Operational Plan
• Startup Expenses and Capitalization
• Financial Plan
• Appendices
• Refining the Plan

What is recession?

Recession is described as a period of reduced economic activity of a certain country followed by a decline in general economic climate (decline in real income, increase in unemployment, low production capacity infill...). Recession is less severe than depression. It repeats in cycles every couple of years, usually beginning in one country and requires a period of several months or quarters to transfer to other countries.

There are three basic predictors: duration, depth and diffusion. Consumers respond to recession by changing their shopping habits, they spend more carefully and for a competitive marketing activity during economic recession a business subject needs to take all three predictors into consideration.

Definition courtesy of Limun

 

Founding an ltd in Croatia

Another post published at Product of Croatia




Of course I am the author of that article.

I have been monitoring the founding of on limited liability company and the costs it has incurred. Due to the details of the founding and the inexperience in the real world, I have chosen an entrepreneur beginner and the business of the family home. Total costs of the founding and registration are around 25.200,00 kunas.
Everyone of you sometimes have an idea of starting their own business. But idea can’t be realized without a solid form of doing business, like a company, crafts, cooperative, family agricultural estate or freelancing. Once you put everything down and see what would be the best form for the realization of your idea then you have to decide what to register.
I wanted to show on a practical example how a limited liability company can be registered, for working at home.
That’s why I have chosen an entrepreneur beginner and went through all the phases of founding a ltd for work at home, of course marking all the expenses.
Now when we have been through all those phases we can tell you: “Nothing is hard if you have a goal, if you are persistent and if you have experts helping you.”
Founding the ltd can be divided into a couple of steps:

*Gathering the basic data
You have to know that there are many ways to gather info on founding a ltd. but the simplest way is to go to HITRO.HR – service available within a Financial agency (FINA). You can get all the info in one place and do most of the steps there.
Our entrepreneur went to Osijek HITRO.HR (phone 031/222 285, info phone 0800 0080) where she got all the necessary data. First step is choosing a name. we arrived at the HITRO.HR counter with a couple of names and the kind clerk checked them for us to see if they are valid for a ltd. Our entrepreneur was able to see all the fees and costs for founding a company and received a form of warrant that has to be ratified at the notary.
Couple of names didn’t check, and only the third one got the green light. Since it was a name of a person later on she had to give an explanation why she wants that name (in our case it was the name of our entrepreneurs grandmother).

**Auditor and notary

When founding a company the founder has to invest minimum base capital in amount of 20.000 kunas. Entrepreneur decided on that minimum amount and invested 10.000 kunas cash and 10.000 kunas in equipment.
Due to the decision to invest half in equipment entrepreneur had to ask, via a written request, from the Trade court in Osijek to name a auditing company. The day after submitting a request Trade court named a auditing company that soon afterwards in a very professional way did a audit of the company founding (Audit report).
With two Audit reports, copies of identification cards of the founder and member of board and warranty for HITRO.HR entrepreneur goes to the notary office to file the needed documentation. At the notary office entrepreneur named her need for doing the business of the future firm for which it has been registered.
After a couple of days, when called, she goes to the notary and validates Application for registering into a Court register (form Po), founding act – Statement o founding a company, Statement of the members accredited to represent the company that they accept the responsibility, Decision on naming the members of the Board, directors and Board members signature, and the Agreement of investing equipment as part of the base capital.
At the same time entrepreneur had to give a Statement to explain the naming of the company since the name was after her grandmother.
With the Application for registering into a Court register and other annexes founder and a Board member go to HITRO.HR where they file the documents at the HITRO.HR counter at FINA. Shortly the clerks of HITRO.HR service gave the needed directions and we had a couple of days to wait for the Trade court decision. At the FINA counter founder did all the payments.

***Trade court decision
Entrepreneur wanted to open a family home for at most 20 users in form of permanent accommodation which lengthened the process somewhat.
Law on social care permits doing this service only in form of ltd. company. She had to go to the notary once again to sign a arraignment on naming the director by the company assembly and the statement of the functioning of the family home outside of the social care network which enables her to file a request for making a decision on fulfilling regulated conditions, according to the law, without filling a request for giving out a permission.
Very soon a call from HITRO.HR followed that called her to come for the Decision of registering at the court register as well as a Notification of categorization of the business subject according to the National classification of services by the Central bureau of statistics.
The whole procedure lasted for 15 days.

**** Seal and opening an account
The whole job is not over until you make a seal and open an account. Seal can be made at , for that registered, entrepreneurs, and it was done in two days.
With the decision of registering at the court register (attach a copy, original bring for checking), Notification of categorization of the business subject by the Central bureau of statistics, seal and ID card of the persons that will be cosigners of the account where the entrepreneur opened an account for regular business transactions.
Account has been opened with the beforehand filling a request for opening a business account and signing a Contract on opening and running a business account.
Account can be opened at the HITRO.HR counter for the bank for which FINA does the job of opening an account or intermediates in doing those jobs or in a bank of your choice.
Next we had to register the firm at the tax office, competent for the area where the base of the company is because it has to be registered in the register of the profit tax payers (you have to show them Decision of registering at the court register, Notification of categorization and signature card).
You still have 15 days since you start doing business to register at the Croatian pension fund and Croatian health insurance. You can do that also at the HITRO.HR counter.

***** Costs of founding and registering ltd.
You can make all the payments at HITRO.HR counter.
We have counted all the costs whose structure and amounts are as follows:
- judicial fee for naming an auditor 250,00 kn
- audit of the company founding 732,00 kn
- making and validating act for the Trade court, notary 2.804,00 kn
- founding capital, money 10.000,00 kn
- founding capital, equipment 10.000,00 kn
- receipt on the paying the founding capital 23,79 kn
- judicial fees 400,00 kn
- costs of the announcement in the Official Gazette 810,00 kn
- Central bureau of statistics fee 55,00 kn
- seal 140,00 kn

TOTAL: 25,214,79 kn