Business Planning - International Union for Conservation...

Integrating Business Skills into Ecotourism Operations (IUCN Workshop)

Business Planning Presenters Jayantissa Kehelpannala - (President The Hotels Association of Sri Lanka) Susith Jayawickrama - (Vice President The Hotels Association of Sri Lanka)

Regulatory and Other Requirements for Setting Up a Business

Regulatory and Other Requirements for Setting Up a Business in Sri Lanka

Apply for name approval

Any organization seeking registration under the Companies Act, No. 07 of 2007 should

get the business name registered.

Register the company with the Registrar of Companies (ROC)

• Form 1 (Initial Directors and shareholders)

• Form 18 (Appointment of Directors)

• Form 19 (Appointment of Secretaries)

Other regulatory registration requirements

• Department of Inland Revenue (Obtain a TIN No, VAT Reg)

• Department of Labour (EPF & ETF).

• Sri Lanka Customs (Imports & Exports)

• SLTDA (Hotel sector)

• Registration with the Local Government - Pradeshiya Saba/Municipal Council

• Trade Licenses - Pradeshiya Saba/Municipal Council

• Environment Protection Licenses - Central Environment Authority

• Liquor Licenses - Department of Excise

• Foreign Currency Acceptance Permit - Central Bank of Sri Lanka

Regulatory and Other Requirements for Setting Up a Business in Sri Lanka

Other hotel sector specific licenses/requirements.

Incentives for Setting Up Business in Sri Lanka

Board of Investment (BOI)

BOI functions as the central facilitation point for investors and is empowered to approve

projects under following categories.

• Projects approved under Section 16 of BOI Law

• Projects approved under Section 17 of BOI Law


Investments in Sri Lanka enjoy range of incentives and concessions based on criteria

such as nature of business, quantum of investment, employment creation and

geographic location

Projects approved under Section 16 of BOI Law

The entry of foreign investment is permitted without any fiscal concessions. These

approvals are granted only to facilitate the entry of foreign investment to setting up of

a new company with foreign shareholding or for the purpose of transferring or

issuance of new shares in an existing non-BOI company to foreign investors

At present the minimum investment requirement US$ 250,000. This can be either

100% foreign investment or a joint venture investment with a local collaboration.


Projects approved under Section 17 of BOI Law

BOI is empowered to approve projects and enter into agreements with enterprises

and to grant exemptions from laws subject to fulfillment of specified requirements.

• Income tax holidays up to 12 years for new investments and expansions based on

sector investment/activity. An investment threshold is granted Reduced corporate

income tax rates after the expiry of the tax holiday period

• Exemption from payment of customs duty during the project implementation period

• Suspension or deferment from payment of VAT during the project implementation

period.

• Exemption of deferment on payment of Port and Airport Development Levy (PAL)

• Exemption from dividend tax for dividends declared for a specified period after

commencement of business

• Exempting expatriates from PAYE tax and withholding tax on payment of interest,

royalties etc.


Developing a Sustainable Business Plan


Why Develop a Business Plan ? • To develop key objectives and goals.

• To develop an objective outlook on the proposed project.

• To reduce the probability of errors in judgment.

• To communicate the direction of the project to all parties involved.

• To obtain funding requirements for the project.

What is a Business Plan ? A business plan is a formal statement of a set of business goals, the reasons

they are believed attainable and the plan for reaching these goals.


Getting Started

The feasibility study will include an initial study on

the financial, economic, social, environmental and

operational feasibility

Based on the results the viability of the project

should be decided.

A Business plan is developed.


Key Elements in Developing a Business Plan

Business concept, Vision and Mission, Current position and Initial financial requirements/Capital

SWOT, PEST analysis. marketing strategies, pricing etc..

How the business will function & resource allocation

Income Statement, balance sheet, cash flow statement, budgets and projections

Organizational structure and staff/skill requirements.

Risk management

Social & environmental sustainability and stakeholder management.

Financial Planning, Budgeting & Cash Flow Management


The importance of financial planning

Plan to meet fluctuating cash flows and ensure smooth operation.

Generating cash to sustain medium/long term operational needs.

Analyzing expenditure based on cost, benefit & importance

Compare actual results against initial forecasts/goals

Create short, medium and long term financial goals, minimum return on investment etc…


The main financial planning components & tools


Actual Budget Variance

RevenueRooms Department 4,144,016 4,748,006 (603,990) Food & Beverage Department 4,332,847 3,988,163 344,684 Total Revenue 8,476,863 8,736,169 (259,306)

Cost of SalesRooms Department (88,905) (106,604) 17,699 Food & Beverage Department (2,002,356) (2,030,409) 28,054 Total Cost of Sales (2,091,261) (2,137,013) 45,752

Total Gross Profit 6,385,602 6,599,156 (213,554) Gross Profit % 75% 76%

Other Income 250,000 125,000 125,000

Undistributed Expenses/OverheadsAdministration & General (362,070) (385,193) 23,123 Payroll Related Expenses (705,136) (744,280) 39,144 Energy (294,868) (331,112) 36,244 Repairs & Maintenance (66,081) (181,333) 115,252 Selling & Marketing (213,410) (240,740) 27,330

(1,641,566) (1,882,658) 241,092

Operating Profit 4,994,036 4,841,498 152,538

Depreciation (112,500) (112,500) -

Profit before Interest & Tax 4,881,536 4,728,998 152,538

Bank OD Interest (20,000) (15,000) (5,000) Bank Loan Interest (500,000) (500,000) -

Net Profit / (Loss) before Tax 4,361,536 4,213,998 147,538

Income Tax

Net Profit / (Loss) 4,361,536 4,213,998 147,538

Month (LKR)Particulars

Income Statement


Balance Sheet as at 31-03-2013 LKRASSETS

Non - Current AssetsProperty, plant and equipment 13,817,737 Other Non current assets -

13,817,737

Current AssetsInventories 2,890,862 Trade Debtors 4,247,228 Other Debtors 6,585,520 Cash at Bank & in Hand 5,183,945

18,907,556

TOTAL ASSETS 32,725,293

EQUITY AND LIABILITIESShare Capital and Reserves Issued and fully paid share capital 20,000,000 Accumulated Profit / (losses) 461,520

20,461,520

Non Current Liabilities Interest bearing borrowings- Banks 8,000,000

8,000,000 Current Liabilities Trade Creditors 1,798,536 Other Creditors & Accruals 2,429,697 Bank Loans & Other short term loans 35,539 Provision for Taxation

4,263,772

TOTAL EQUITY AND LIABILITIES 32,725,293


Direct Cash FlowMonth 1 Month 2 Month 3

ReceiptsSales Receipts 120,000 275,000 150,000 Interest Received 2,000 8,000 3,000

Total Receipts 122,000 283,000 153,000

DisbursementsPayments to suppliers (35,000) (100,000) (40,000) Utility bill settlement (15,000) (20,000) (10,000) Loan/Interest payment (75,000) (75,000) (75,000) Insurance (25,000) (25,000) (25,000)

Total Disbursements (150,000) (220,000) (150,000)

Cash Balance as at beginning of the month 15,000 (13,000) 50,000 Total Receipts 122,000 283,000 153,000 Total Disbursements (150,000) (220,000) (150,000)

Cash Balance as at end of the month (13,000) 50,000 53,000

LKR


A budget is an important part of financial planning

The importance of having a budget

• Manage Expenditure

• Setting of operational and financial targets

• Plan for future growth

• Help monitor actual performance.

• Identify operational areas for improvement.

• Better/optimum resource allocation.


Key Performance Indicators

Main KPI’s in the hotel industry include

• Occupancy

• Average Room Rate

• Revenue per Available Room

• Beverage/Food Sales per Guest Night

• Beverage/Food Cost %

• Energy Cost per Room

• Employee Cost/Employees per Room

Pricing Strategies

Pricing Strategies Cost-plus Pricing

Assures all costs are covered and price is fixed based on a desired profit percentage.

Demand Pricing

Price is based on demand for product/service

Competitive Pricing

Used as a pricing strategy when it is difficult to differentiate products.

Dynamic Pricing

Changing prices based on demand, type of customers, time etc…

Pricing Strategies Illustration on cost behaviour and pricing

Scenario 1 Scenario 2 Scenario 3 RemarksRooms 20 20 20 Days 365 365 365 Rooms Available 7,300 7,300 7,300 Occupancy 100% 50% 30%Occupied Rooms 7,300 3,650 2,190

Total Fixed Cost (LKR) 20,000,000 20,000,000 20,000,000 Fixed cost is constant

Fixed Cost per Occupied Room (LKR) 2,740 5,479 9,132 Fixed cost per room increases when occupancy drops

Variable Cost per Occupied Room (LKR) 1,500 1,500 1,500 Variable cost per room is constant

Total Variable Cost (LKR) 10,950,000 5,475,000 3,285,000 Total Variable cost increases when occupancy increases

Total Cost per Room (LKR) 4,240 6,979 10,632 Base Price at each occupancy level. Any price over and above the base price will create a profit

At times of low occupancy any price over and above the variable cost per room will reduce the losses incurred. Hotels can accept such bookings as fillers in order to reduce losses. (Contribution towards fixed overheads)

Thank You

Business Planning - International Union for Conservation...

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