Business Plan Guidelines - Flinders University Forms... · Web viewBusiness Plan Guidelines. ......

Business Plan Guidelinesfor a

Significant new commercial initiative

Sept 2006

Business Plan Guidelines

for a significant new commercial initiative

These guidelines should be read in conjunction with Flinders University’s Risk Management policy and procedures.

For the purpose of these guidelines it is assumed that your initiative has met the significant commercial initiative test and approval has been given to develop a business plan.

Test - Is the initiative a significant commercial venture or initiative?

Ventures or initiatives which are: commercial (i.e. related to business, as established by Criterion A); and

significant (i.e. important, notable, material and of consequence, as established by Criterion B) should prima facie be referred to Council for approval.

Criterion A:

Where capital is to be laid out on any work and there is a risk of profit or loss, it is a commercial venture or initiative.

Criterion B:

The commercial venture or initiative is significant if any one of the following apply.

(i) University’s reputation - the potential risk to the University’s reputation is significant

(ii) University assets (other than cash) - If the University is required to make available staff and/or equipment and/or infrastructure and/or intellectual property, to a notional value of greater than $250,000 per annum(iii) Cash investment - If the University is required to make a commitment of greater than $250,000 in total, across the expected duration of the commercial venture or initiative

(iv) Potential liabilityIf the University is potentially liable to underwrite an initiative at a cost greater than $250,000(v) OwnershipIf the University ownership interest is 20% or more

(vi) Annual revenueIf the annual net revenue is expected to exceed $250,000 per annum

(vii) Offshore initiativesIf the offshore initiative is not within the scope of the Policy on the Development of Offshore Programs

(viii) Other imperativesIf, in the Vice-Chancellor’s judgement there are important internal or external factors which should be brought to the attention of Council.

of 21

Executive SummaryWrite this section last! Try to keep it to 3 pages or 4 pages.

You need to paint the picture fast – so be brief and concise Give a concise overview of the proposed business

What will your business undertake? What market segment will you occupy?

Major competitors are? Broadly your customers are?

What future benefits will be achieved for the business and for the University? How will the proposal fit with the University's strategic directions, goals and

objectives? Identify the significant areas of risk associated with the proposal and an indication of

how they will be managed

Make it enthusiastic and professional

zz means information is required.

Some useful tips

First paragraph -The proposal is designed to [attract, achieve, produce, develop, create]The proposal is a [commercial, educational initiative, community, other?] that seeks to ….

Alignment with Flinders University strategic directions The proposal supports the following Flinders University strategic directions

Market The target market is [growing at.., mature, has strong competition, young, niche

that will specialize in, capital intensive] There are [number] major competitors who control [this segment, etc] The ease of entry into this market is [not difficult because, difficult because..,] The product or service will appeal to [type of customers] that are [stable, volatile, etc]

Growth Potential The forecast sales are listed in Appendix [ ]. In summary [sales and profit

performance, student growth, fees, etc.] are as follows: zz

Government, Loan borrowing needs or other support for the Plan Describe the nature and extent of the borrowing or support.

Value adding to University Revenue and Related Entities

The proposal will develop strong educational relationships with commercial educational providers; and [zz]

Further develops Flinders University as a major educational precinct in Adelaide’s southern region

Management and Governance

of 21

The executive team managing this [business, activity], their backgrounds, qualifications and appear in appendix zz. [Optional]. Governance and organizational structure is listed at appendix [zz]

Introduction or BackgroundThis is optional. In this section give the reader some back ground material of why the business idea came to fruition [need], who originated the idea or a rationale behind the plan. It can be series of bullet points or narrative.

Example –

Research into [ ] has established that there is a clearly identified gap in technology services for the [ ] sector. Only one company operates in this market and there client base is at the high end of that industry sector. Messes [x] and [y] from the [ ] faculty proposed and have received in principle support to [ ], etc.

Glossary and AbbreviationsInclude here definitions, acronyms and abbreviations.

The Business and its Industry Sector[This is the broad picture; more detailed information to be included under Industry and Competitor Analyses]

What will your business undertake? Describe your industry. Is it a growth industry? What changes do you foresee in your industry, short term and long term? How will your business be poised to take advantage of them?

Description of Business

Name of Business

Location of Business

Mission Statement

Many organisations have a brief mission statement explaining their reason for being.

It should be capable of standing alone as to what the business is all about. By example, “Eradication of Cancer” is a powerful message that can be widely used by the organisation. If the Mission Statement needs further explanation then forget it and start again.

Examples of mission statements:

Flinders University – “Think, Learn, Lead Link”

Adelaide University – “To be an Australian leader in research and teaching of excellence, unequalled in the positive impact our University has on the lives of our students, staff and alumni as well as the local, national and international community”.

of 21

“Entrepreneurial and innovative educational training programs”

“Leading Provider of Children’s Games”

The choice of “To” as the opening word is considered by many as unnecessary. By example - “To create”.

Business philosophy [Optional] or as Flinders University states it “Our Foundations”

You may wish to describe your business philosophy here. It must be in keeping with that of Flinders University. Examples:

Care by respecting living things and living lightly by not wasting energy materials

Ethical by Cooperate by helping others learn and work with our local community Show consideration by [ ]

A philosophy or guiding principles can become a ‘noose around the corporate neck’ as outside parties can use it against you for non-compliance with the principles.

Business Goals or Objectives

Goals or Objectives are one and the same: Flinders University uses the term ‘Goal’ as the high level of its aims followed by the next level, ‘Objectives’. Objectives are qualitative statements about what you want the business to achieve. Refer to Flinders University’s Flinders Way on page 16 as examples.

Note they do not have measurable components. This is developed and stated in KPI’s. That is, ‘Be a leading provider of quality programs rather than ‘Be a leading provider of 15 quality Commerce Programs by 2008’.

State your objectives for the business - can be more than one to achieve the Mission. Objectives are best stated by starting with a verb.

Examples are unrelated objectives to show different forms and for assistance what the mission could be to drive that objective.

Mission might be - An Objective might be -Community engagement Provide Community based programs

Economic Growth Create innovative research capability in the southern region

Eradication of Cancer Provide Health Care in [zz] field

Leaders in geographical & environmental software

Develop geographic information systems

Strategies

Quantitative progress statements [markers] along the way to goal achievement. Examples

of 21

1. Build opportunities for student engagement in University research 2. Monitor learning and teaching by regular evaluation of [zz]

Strategies are then supported by tasks under each strategy.

However it is best to present strategies, tasks and required resources, performance indicators within a separate document called Strategic Implementation Plan. This will allow you to refer to this plan on a regular basis rather than the Master Business Plan. That can remain unchanged for the years set by the Plan. For assistance with this latter component call Financial Services Division on zz.

An example of the headers to an Implementation Plan appears below. Note each objective has its own set of strategies, tasks and performance indicators.

Strategic Implementation Plan

OBJECTIVE: Provide Community based programs PRIORITY 1

No Strategy Actions/Tasks Responsibility Who Timeline

Performance Indicators

Status Comments

Corporate Structure

The following sets out relevant facts about different types of entities.

Sole Proprietor Partnership Company Incorporated Association

Simple and low cost to set-up

Simple and inexpensive to set-up

Relatively complicated and expensive to form

Simple and low cost to set-up

Legal requirements are minimal

Legal requirements at a minimum

Highly regulated by government

Legal requirements at a minimum

Owner has total control

Control shared Controlled by directors and ultimately, shareholders

Members of the Association control its affairs

Limited record-keeping and reporting required

Limited record-keeping and reporting required

Demanding record-keeping and reporting requirements

Limited record-keeping and reporting required. Depending on its turnover the Association may need to appoint an auditor

Easily discontinued Can be difficult to dissolve

Can be difficult to dissolve

Some difficulties in dissolving and the Constitution must establish how its assets will be dissolved

Owner retains all profits

Profits split between partners

Profits can be retained Profits cannot be distributed

Owner makes all Partners can disagree Decisions made by board A board of executive

of 21

decisions appointed by the members manages the affairs of the Association

Unlimited legal liability Partners jointly and individually liable

Limited liability of shareholders

Liability is limited to unpaid member ship fees

Ownership can be transferred (usually as a whole)

Transfer of ownership is somewhat complicated

Transfer of ownership simpler

Its assets and liabilities may be transferred but the entity cannot

Tax at marginal personal rate

Can have tax advantages by spreading income

Undistributed profits presently taxed at 30%

Tax at concessional rates for non-member income. Income relating to the affairs of members is exempt income

Limited range of expertise and advice required

Specialisation of partners is possible

May have wider range of expertise in-house

Limited range of expertise and advice required

Inability to raise capital Limited capital available

Easier to raise capital Not permitted – only membership fees, fundraising and some commercial ventures that are taxable

As produced by the Small Biz Centre http://smallbusiness.ninemsn.com.au/default.aspx] and Incorporated Associations column added.

A number of other factors have to be considered in choosing the right legal structure -

purpose of the business and its duration cost and complexity of the desired structure availability of funds kinds of assets the business will acquire and the control exerted by owners and

managers whether votes and control will need to be divided among several parties and who is

entitled to any assets upon winding up taxation issues powers to be exercised by each business member or group whether the members’ interests should be transferable or saleable and on what

conditions whether the business should be independent of the members, with its own legal

capacity to sue and be sued, buy or sell property, etc and the liability of the members the requirements to ensure grant opportunities

Please refer to Financial Services Division for advice on the best form of corporate structure for the proposed business. The University also has policy and procedures covering investment in entities that must be followed. Please refer to Flinders University’s web site under Policies and Procedures.

SWOT Analysis

of 21

http://smallbusiness.ninemsn.com.au/default.aspx

Strengths(What are we good at that will drive the business?)

Weakness(In what areas are we not strong?)

Opportunities(What opportunities are there for the future?) Exploitation of intellectual property Diversification of the product or service mix

Threats(What are the threats to our Business - competitors, technology, equipment and other deficiencies?)

What factors will make the business succeed? [strength]What background experience, skills, and strengths do you and your team bring to this venture? [strength but also a possibly weakness]What do you think your major competitive strengths will be? [strength] and those of your competitors [threat]

Marketing ResearchWhy market research?

No matter how good your product or service, the business may suffer or fail unless its products or services are properly marketed. However, to achieve that requires effective market place research. If you know what the market place has on offer, market trends and benefits to the consumer/client then your marketing plan should enable you to fully compete. Two options are generally followed.

Market research optionsPrimary market research is to gather your own data. For example, use the yellow pages to identify competitors, undertake surveys or focus group interviews to learn about consumer preferences. Use Flinders University resources, other research material and your own research expertise to gather that information.

Other research includes published information such as industry profiles, trade journals, newspapers, magazines, census data, and demographic profiles. This type of information is available in Flinders University and/or public libraries, industry associations, chambers of commerce, Universities, vendors who sell to industry sectors and government agencies.

Start with the library or discuss with other Faculties, Universities or business associations.

Be careful not to disclose too much information in your inquiries.

In your marketing plan, be specific and provide back up statistics and sources. Importantly, the marketing plan will also be the basis for income projections.

Products and ServicesDescribe your products and/or services (technical matters, drawings, photos and brochures belong in an Appendix). Use bullet points to list products or services.

of 21

Describe the target market to buy or use your products or services. (State it briefly here but include a more thorough explanation in the Marketing section depending on the breadth of products or services to be provided).

What are your competitive advantages or disadvantages? For example, level of quality or unique or proprietary features, price differentiation and why?

What other product or service features are planned for the future?

Product DifferentiationIn the section above you described your products and services as you see them. The danger is that you have not assessed your customer's point of view?

Features and BenefitsFor each product/service:

o Describe the most important features. That is, what will the product do for the customer?

o For each produce/service, describe its benefits. That is, what will the product do for the customer?

Note the difference between features and benefits, and think about how they may affect sales. What will you offer after the sale to increase the benefit and make your customer stay and be satisfied or use your services again?

Examples:

A manufactured car that provides transport 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, lifestyle support and reputation [high trade in value e.g. a BMW car]. You build features into your product [e.g. reverse warning device] so you can sell the benefits.

An AOU provides research capability to improve a specified product – features of the service; the follow up service - value adds to the advice and reputation of Flinders University and is the benefit.

Customers

Identify your targeted customers, their characteristics, geographic and demographic considerations. Are there customer groups within your target market?

If selling the service or product through another party such as a University associated entity, health provider, distributor or wholesaler, analyse their competencies as well as the needs of end consumer.

Will you have more than one customer group? If so, identify the most important and for each consumer group, construct a demographic profile:

o Ageo Gender

of 21

o Locationo Income levelo Social class/occupationo Educationo Other (specific to your business)

For business customers, the demographic factors might be:

o Industry (or portion of an industry)o Locationo Size of firmo Quality/technology/price preferenceso Other (specific to your business)

Industry AnalysisInclude here facts about your chosen industry sector. Who are the operators and how long they have been in the market?

What is the total size of your market and consider state, national and international perspective?

What is the current demand in target market? Strong, weak, flat, etc.

Trends in target market - growth trends, trends in consumer preferences, and trends in product development. Is the market innovative, creative, growing or mature?

What percent share of the market will you seek to achieve?

What is the growth potential and opportunities for the business?

Barriers to entry

What barriers to entry do you face in entering this market with your new entity? Some typical ones are:

o High capital costs o High production costso High marketing costs o Consumer acceptance/brand recognitiono Training/skills o Unique technology/patentso Unions o Transport costso Tariff barriers/quotas o Scarcity of product

How will you overcome the barriers?How could the following affect your organisation?

o Change in technology o Changing economyo Government regulations o Change in your industry

Ease of entry

of 21

Consider the ease of competitors to enter your chosen industry sector. By example, a Lawn Mowing business is at the risk of low start up cost by a new competitor.

CompetitionDescribe your competitors, their products and services compared to your chosen products or services. For major competitors comment on why they have market dominance i.e. price, advertising, better product, etc.

Describe how you will operate if in the same market segment or a segment of that market and how will your products and services compare to your competitors.

Will they compete with you in across the board, or just for certain products, certain customers, or in certain locations?

Will you have important indirect competitors? (For example, Consultants compete with University academic consultancies, though they are different types of business.)

Use the competitive analysis on the next page to rank your competitors from the potential Customers’ perspective. Compare your proposed business with your two most important competitors. In the first column are key competitive factors. Customise the list of factors to suit this plan.

Working from left to right across the column and in a few words, state how your customers might compare you with your competitors. Will this factor be a strength or weakness – Mark yes or no?

In the final column, estimate the importance of each competitive factor to the customer.1 = critical; 5 = not very important.

Take a reflective view of the results – are you too optimistic or to pessimistic? This table will have a major impact on how you direct and market the business in the future.

of 21

Table 1: Competitive Analysis

Factor Us Strength Weakness Competitor A Competitor B Importance to Customer

Products

Price

Quality

Selection

Service

Reliability

Stability

Expertise

Company Reputation

Location

Appearance

Sales Method

Credit Policies

Advertising

Image

of 21

On completion of the competitive matrix and having identified your competitive advantages and disadvantages, consider whether a niche markets exists for this business. If so, define below your advantages, disadvantages and perhaps an identified business niche to separate you in the market.

Competitive Advantages

Competitive Disadvantages

Niche market

Marketing StrategyUsing the above competitive matrix analysis, develop a marketing plan using the following headings.

Promotion

How will you communicate your sales message to your targeted customers?What forms of promotion will you use? By example, direct mail, telephone cold calling, letterbox drops, catalogues, trade shows, promote to other universities and professionals, etc.Graphic design and image can be important. Have you retained the services of a professional graphic design artist to develop logo, letterheads, business cards and advertising logo styles? 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?What image do you want to project? How do you want customers to see you?Should you have a system to identify repeat customers and then systematically promote/contact them?

Promotional Budget

How much will you spend on the items listed above before start up and ongoing?

Pricing

Customers do not always buy on price alone; care and thought should be evident in your commentary about how and why prices are set. Also when do you plan to review them?Remember that large competitors are far better at sustaining themselves in a price war if you are attempting to operate mainly on price. Far better to have your pricing in the middle range and compete on quality of service and product advice.

It can be useful to set up a price matrix whereby the most expensive is ranked at 100 and you monitor your pricing as an index to 100. Say you have a product that sells for $75. The major competitor has a similar product but sells it for $100. You price index is .75. This helps you monitor price changes and your pricing strategies, excluding of course cost pressures and corresponding pressure on price margins.

If applicable, what will be your customer service and credit policies?

Distribution Channels

of 21

How will you sell your products/services?

o Retail o Direct (mail order, web, catalogue)o Wholesale o Your own teamo Agents o Independent representatives

Sales ForecastUse a sales forecast spreadsheet to prepare a month-by-month projection for the first year then quarterly thereafter for up to three years. The forecast should be based on the marketing research and strategies that you have just described. Try doing two forecasts:

1) "realistic”, what you expect, and 2) "worst case" low estimate to see how it impacts on your ‘bottom line’

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.

Operational PlanExplain the daily operation of the business, intended location, equipment, people and processes.

Production

Where will you produce your products or services? Briefly explain:o Production techniques & costso Quality controlo Customer serviceo Inventory controlo Product research and development

Location

What are your location needs and how important is it to your customers.If proposed customers will come to your place of business:

o Is it convenient? Parking? Interior spaces? Not out of the way?o Is it consistent with your image?o Is it what customers want and expect?o Where is the competition located? Is it better for you to be near them such as

Incubator Centre environment or adjacent to Flinders University. Other examples – Clusters (like car dealers or fast food restaurants) or distant (like hardware stores).

o What qualities do you need in a location? Describe the type of location you will have.

Physical requirements

of 21

o Space; how much?o Type of buildingo Building Zone?o Power and other utilities

Access

How important is access to your business. If you are high tech entity conducting research your access requirements will differ from say a retailer who needs people traffic (major dept store) to support sales.

How important is access to transportation (e.g. semi trailers) or to suppliers? What are your requirements for parking, and proximity to motorways, airports, rail, freight centres?Construction versus lease? Consider whether you can afford to construct a building. In the early stages of business growth it may be better to lease and test your sales expectations. On the other hand a lessor may demand a three or five year lease. Be very careful and check with our legal advisor or seek independent legal advice before making any commitment whatsoever.

Occupation expenses should include rent, maintenance, utilities, rates, insurance and security.

Legal Environment

Describe the following:o Permitso Health, workplace or environmental regulationso Special regulations covering your industry or professiono Zoning or building code requirementso Insurance coverageo Trademarks, copyrights, or patents (pending, existing, or purchased)

Personnel

o Number of employees by type of skill (skilled, unskilled, professional)o Ease of obtaining the right employees?o Quality of existing staff o Creation of position descriptionso Pay structureo Staff training requirementso Who does which tasks and will you use contractors?

Inventory [if applicable]

of 21

What inventory will you keep: raw materials, supplies, finished goods?Consider your average stock remembering high stock values is ‘dead’ money until sold If possible try and find ‘Rate of stock turnover’ industry averages and test them against your own forecasts?

Consider seasonal build ups and the lead-time for ordering?

Suppliers

Identify key suppliers and consider using more than one supplier to minimise your risk exposure for late or non-supply

o Names & locationo Type & amount of inventory to purchaseo History & reliability

Do you expect shortages or short term delivery problems?Supply costs - steady or fluctuating? If fluctuating, consider a supply contract setting prices, and delivery times, etc.?

Consider Preferred Supplier arrangements to ensure supply while obtaining price reductions. Under such an arrangement you may benefit by only one supplier. Check with the University as to whether the new entity can take advantage of current bulk buying arrangements.

Policies and Procedures

What significant policies and procedures should you include?

Remember OH&S compliance is essential if you have employees.

Management & Organization Who is going to manage the business and what is the level of competency required. Just because you and your team have created this wonderful business opportunity, the expertise of running and growing the business may require a different skill set. Consider this aspect and list all key personnel and broadly mention their relative strengths that will add value to drive the new business. If you intend to seek external investment or finance attach a CV on each named person. This information will be critical for potential lenders.

If the number of intended staff exceeds ten, please include an organisational chart show positions (not names of people).

List other advisors such as lawyers, bankers, patent attorneys, insurance broker and consultants/advisors.

You may wish to list “Advice from Others” showing name, title and organisation. This adds credibility to the thinking behind the plan.

Difficulties and Risk

of 21

In every new venture difficulties and risk have the potential to undermine the success of the venture. The risk may be real or perceived and may vary for low to high and includes likelihood. You can refer to the Australian Standard 4360 Risk Management for more detail.

However, for general purposes consider these matters:

Insurable risk and what excess (deductible) to reduce premiums.

Product risk (Product causes injury, sickness or death).

Guarantees & Warranty risk if this is offered.

Social, environmental, technical or governmental trends or initiatives that may or in the future affect the proposed business? This would include noise, waste management, bio-degradable products, terrorism, etc,

Locality risk – finding a suitable property or rent space.Will your business be overrun by domestic dwelling growth, etc.

Reputation riskFinding the right staff Finding potential investors

Difficulties – Cultural and Governance changes from the initiative affecting staff, University staff & suppliers Barriers to entryControlling ‘know how’ transfer

Systemic issues – product supply chains and continuity

Ability to meet critical time frames. E.g. registration of intellectual property.

The SWOT will also have assisted you in completing this section and how you will manage those risks.

Start up Expenses All new businesses will incur start up costs. These should be separated from other financial information provided. The reasoning is that such costs are usually outside normal operating expenses and far better to identify than let them be absorbed into the first year’s operating costs. External lenders also like to see these costs and are likely to make value judgment on whether those costs are reasonable.

Even with the best of research, opening a new business has a way of costing more than you anticipate. Such ‘surprise’ expenses should not be dealt with by ‘padding’ each line item in the budget. This destroys the accuracy of your careful plan. The best approach is to add a separate line item called contingencies, to account for the unforeseeable.

If you cannot obtain good information, a rule of thumb for contingencies should equal at least 10% and up to 20% of the total of all start up expenses.

Explain how you arrived at your forecasts of expenses. Give sources, amounts, and terms of proposed loans.

Raising Capital - InvestorsInvestors look for growth and expect to share in the rewards commensurate with the risk of investment in the business undertaking.

Investment has numerous forms. The more common are:

of 21

Form/Factors Benefit to Business Benefit to InvestorLoan Repayment removes obligation

whereas shares is a permanent obligation to pay dividends

Requires a rate of return commensurate with the risk (usually higher than Overdraft interest rate)

Share of sole trader business Attractive to some businesses as the risk is shared but so is the reward. Risk is the unlimited personal liability for the sole proprietors.

Potential for significant growth and reward compared to other forms of investment. Same personal liability risk.

Issue shares in a Pty Ltd company

No obligations to pay dividends but directors are at risk of being replaced by shareholders if no dividend distribution. Sometimes difficult to find investors as Pty coy not permitted to make open public invitations to invest.

Expectation of a reasonable dividend for the investment but limited opportunity to sell shares in the company.

Public company Public offering to take up shares in the company. Expensive to establish prospectus. Provides capital to operate business.

Shares are listed securities on ASX, can be sold on market and have potential for capital growth as well as receiving dividends.

IPO Start up business is successful with potential to publicly float company for significant capital returns

Investor has the opportunity to participate in a public float.

Buy Back Business can re-acquire issued shares to lower dividend obligations when cash flow from business allows this action.

Investor has an expectation of when invested funds may be returned.

Initial Public Offering (IPO) Australian Stock Exchange (ASX)Please consult Finance Services Division for further advice on investment options. If investors are known show the proposed contribution and share of business for each investor.

Name of Investor $ contribution In kind contribution

Shares/% of equity

Financial PlanThe financial plan normally consists of a three year profit and loss projection, a cash flow projection, a projected balance sheet, and a breakeven calculation. Together they constitute a reasonable estimate of your entity's financial future. More importantly, the process of thinking through the financial plan will consolidate your picture of the entity’s planned financial performance.

Sales projections will come from your sales forecasts. Cost of goods sold should be based on your research with potential suppliers or costs to manufacture estimates. Expenses will evolve from how you see the operation being managed.

Forecast should be monthly for first year then quarterly for up to three years.

Profit projections should be accompanied by a narrative explaining the major assumptions used to estimate entity income & expenses.

Keep your research and assumptions, so you can explain them later, if necessary and also use them for review of performance and future planning.

Projected Cash flow

of 21

Profit projection is critical to your business plan, but cash is ‘king’. Businesses fail because at some point they cannot pay their expenses. Every part of your business plan is important, but none of it means anything if you run out of cash. You should keep updating cash flow needs at least quarterly and if you see problems then it can become crucial to embark on even weekly cash management.

Plan how much you need before start up, preliminary expenses, operating expenses, and what you should have in reserve in case sales do not reach planned performance.

Determine when you actually expect to receive cash for sales or when you will actually have to pay for expenses. Major items could be where you carry stock or product. You may want to bulk buy that stock or have seasonal stock build up (Christmas period) so cash payment will differ from when your allocate the cost against the sold item.

Capital cost is another item specifically related to cash. Spending $500,000 for plant or equipment is different to an expense – it is a capital cash outflow but does not show in the profit and loss statement, only depreciation [writing off the asset value over its economic useful life]. For $500,000 capital expense with a 10 year life, annual depreciation expense calculation is $50,000.

The same goes for income tax or GST payments – plan the cash flow to accommodate these cash out flows.

Loan repayments do not show on profit and loss statements, but definitely do take cash out. Be sure to include them.

And of course, depreciation does not appear in the cash flow at all because it is non-cash charge expense against the business.

Discounted Cash FlowThis is a specialized assessment and evaluates the future cash flows of the business by discounting future in flows and out flows to a present day value. It determines whether the business will return a positive cash flow and over how long will that take. In the example above $500,000 is the out flow and net profit excluding depreciation is the in flow.

Please call Financial Services Division for help with this assessment.

Breakeven AnalysisA breakeven analysis predicts the sales volume, at a given price to recover total costs. In other words, it’s the sales level that is the dividing line between operating at a loss and operating at a profit.

Expressed as a formula, breakeven is:

Breakeven Sales = Fixed Costs - Variable Costs

(Where fixed costs are expressed in dollars, but variable costs are expressed as a percent of total sales.)

Please call Financial Services Division for help with this assessment.

Appendices

of 21

Include details & studies used in your Business Plan; for example:

Brochures & advertising materials Industry studies Blueprints & plans Maps & photos of location Magazine or other articles Lists of equipment owned or to be purchased [optional)] Copies of leases & contracts [optional] Letters of support from future customers [optional] Any other materials needed to support the assumptions in this plan Market research studies

Tips for specific industry typesThe standard business plan presented above should be refined to match the industry segment you propose. Some examples of that refinement are:

Manufacturing Planned production levels (Usually based on sales plus a margin to allow for

delivery of stock) Anticipated levels of direct production costs and indirect (overhead) costs. Are

any industry averages available? Sales price per product Gross profit margin, overall and for each product Production/ Capacity limits of planned physical plant Production/ Capacity limits of equipment Purchasing and inventory management procedures New products for development or anticipated to come on line after start up

Service BusinessesService businesses are usually more flexible than other types of business and generally have low asset requirements but often have significant staff costs.

Your price structure and those of subordinates Fee management systems Standard of the services or accepted industry quality standards

How will you measure chargeable hours? Credit, payment, and collections policies and procedures? Strategy for tracking your client base and follow ups?

High Technology CompaniesHigh tech companies frequently operate for a long time without profits, and sometimes even without sales e.g. Drug or medical devices. Bankers are unlikely to lend to you but venture capitalists may invest. The latter is very demanding on meeting stringent performance criteria. You will be asked to produce longer term financial forecasts to show when profit take-off is expected occur. All assumptions must be well documented and well argued.

If you will obtain grants how will you manage their acquittal?

of 21

Other factors are: Level will you plan to set for your ICT requirements? If at the cutting edge with your products and services have you worked through

risk versus reward? What is the level of R&D required to:

Bring product/service to market? Keep the entity competitive?

How does the entity: Protect intellectual property? Avoid technological obsolescence? Retain key personnel?

Retail Business [Unlikely for Flinders University]

Entity image Think of Target Stores and David Jones as two different ends of the market (self service and high level of service; low priced products versus brand name products – where will you be?

Pricing Explain mark up policies how it fits with your chosen position in the market place.

Prices should be profitable, competitive Inventory Selection and diversity should be consistent with entity

image and market position Buying office must be monitored for their Inventory levels

and re-order flexibility is criticalCustomer service policies

Should be competitive and in accordance with entity image

Location Does it give the exposure you need? Is it convenient for customers? Is it consistent with entity image?

Promotion Resolve methods and budgets?Credit Will you extend credit to customers and if so how and in what

forms?

of 21

Business Plan Guidelines - Flinders University Forms... · Web viewBusiness Plan Guidelines. ......

Documents

Transcript of Business Plan Guidelines - Flinders University Forms... · Web viewBusiness Plan Guidelines. ......