Ensuring that there is appropriate planning done before your business starts or sources business funding should be a key focus for any entrepreneur. Whetehr you are starting a digital marketing agency, a fintech startup or a paving contractor in Johannesburg, both banks and investors will insist on a well thought out business plan before the business gets funded. You as the business owner of course have the choice to use a business plan services to guide you in the planning process or even use many of the sample business plans available today to ensure that you consider everything that needs to be addressed within the plan.
Structured planning can make all the difference to the growth of your business. It will enable you to concentrate your resources on improving profits, reducing costs and increasing returns on investment.
In fact, even without a formal process, many businesses carry out the majority of the activities associated with business planning, such as considering growth areas, competitors, cash flow and profit.
Converting this into a cohesive process to manage your business' development doesn't have to be difficult or time-consuming. The most important thing is that plans are made, they are dynamic and are communicated to everyone involved. See the page in this guide on what to include in your annual business plan.
The benefits of business planning
The key benefit of business planning is that it allows you to create a focus for the direction of your business and provides targets that will help your business grow.
It will also give you the opportunity to stand back and review your performance and the factors affecting your business. Business planning can give you:
* greater ability to make continual improvements and anticipate problems
* sound financial information on which to base decisions
* improved clarity and focus
* greater confidence in your decision-making
What to include in your annual business plan
The main aim of your annual business plan is to set out the strategy and action plan for your business. This should include a clear financial picture of where you stand - and expect to stand - over the coming year.
Your annual business plan should include:
* an outline of changes that you want to make to your business
* potential changes to your market, customers and competition
* your objectives and goals for the year
* your key performance indicators (KPIs)
* any issues or problems
* any operational changes
* information about your management and people
* your financial performance and forecasts
* details of investment in the business
Business planning is most effective when it's an ongoing process. This allows you to act quickly where necessary, rather than simply reacting to events after they have happened.
A typical business planning cycle
There are a number of key steps you should consider incorporating into your business planning routine. Below is an example of a typical business planning cycle:
1.
review your current performance against last year/current year targets
2. work out your opportunities and threats
3. analyse your successes and failures during the previous year
4. look at your key objectives for the coming year and change or re-establish your longer-term planning
5. identify and refine the resource implications of your review and build a budget
6. define the new financial year's profit-and-loss and balance-sheet targets
7.
conclude the plan
8. review it regularly - for example, on a monthly basis - by monitoring performance, reviewing progress and achieving objectives
9. go back to step 1
Budgets and business planning
New small business owners may run their businesses in a relaxed way and may not see the need to budget. However, if you are planning for your business' future, you will need to fund your plans. Budgeting is the most effective way to control your cashflow, allowing you to invest in new opportunities at the appropriate time.
If your business is growing, you may not always be able to be hands-on with every part of it. You may have to split your budget up between different areas such as sales, production, marketing etc. You'll find that money starts to move in many different directions through your organisation - budgets are a vital tool in ensuring that you stay in control of expenditure.
A budget is a plan to:
* control your finances
* ensure you can continue to fund your current commitments
* enable you to make confident financial decisions and meet your objectives
* ensure you have enough money for your future projects
It outlines what you will spend your money on and how that spending will be financed. However, it is not a forecast. A forecast is a prediction of the future whereas a budget is a planned outcome that your business wants to achieve.
Benefits of a business budget
There are a number of benefits of drawing up a business budget, including being better able to:
* manage your money effectively
* allocate appropriate resources to projects
* monitor performance
* meet your objectives
* improve decision-making
* identify problems before they occur - such as the need to raise finance or cashflow difficulties
* plan for the future
* increase staff motivation
Creating a budget
Creating, monitoring and managing a budget is key to business success. It should help you allocate resources where they are needed, and should not be complicated. You simply need to work out what you are likely to earn and spend in the budget period.
Begin by asking these questions:
*
What are the projected sales for the budget period? Be realistic - if you overestimate, it will cause you problems in the future.
*
What are the direct costs of sales - ie costs of materials, components or subcontractors to make the product or supply the service?
*
What are the fixed costs or overheads?
You should break down the fixed costs and overheads by type, eg:
*
cost of premises, including rent or mortgage, business rates and service charges
*
staff costs - eg pay, benefits, National Insurance
*
utilities - eg heating, lighting, telephone or internet connection
*
printing, postage and stationery
*
vehicle expenses
*
equipment costs
*
advertising and promotion
*
travel and subsistence expenses
*
legal and professional costs, including insurance
Your business may have different types of expenses, and you may need to divide the budget by department. Don't forget to add in how much you need to pay yourself, and include an allowance for tax.
Your business plan should help in establishing projected sales, cost of sales, fixed costs and overheads, so it would be worthwhile preparing this first. See the page in this guide on planning for business success.
Once you have figures for income and expenditure, you can work out how much money you're making. You can look at your costs and work out ways to reduce them, as well as seeing if you are likely to have cashflow problems, and giving yourself time to do something about them.
You should stick to your budget as far as possible, but review and revise it as needed. Successful businesses often have a rolling budget.
Key steps in drawing up a budget
There are a number of key steps you should follow to make sure your budgets and plans are as realistic and useful as possible.
Make time for budgeting
If you invest some time in creating a comprehensive and realistic budget, it will be easier to manage and ultimately more effective.
Use last year's figures - but only as a guide
Collect historical information on sales and costs if they are available - these could give you a good indication of likely future sales and costs. It's also essential to consider what your sales plans are, how your sales resources will be used and any changes in the competitive environment.
Create realistic budgets
Use historical information, your business plan and any changes in operations or priorities to budget for overheads and other fixed costs.
It's useful to work out the relationship between variable costs and sales and then use your sales forecast to project variable costs. For example, if your unit costs reduce by 10 per cent for each additional 20 per cent of sales, how much will your unit costs decrease if you have a 33 per cent rise in sales?
Make sure your budgets contain enough information for you to easily monitor the key drivers of your business such as sales, costs and working capital. Accounting software can help you manage your accounts. See our guide on accounting software.
Involve the right people
It's best to ask staff with financial responsibilities within the business to provide you with estimates of figures for your budget - for example, sales targets, production costs or specific project control. If you balance their estimates against your own, you will achieve a more realistic budget. This involvement will also give them greater commitment to meeting the budget.
What your budget should cover
You should first decide how many budgets you really need. Many small businesses have one overall operating budget which sets out how much money is needed to run the business over the coming period - usually a year. As your business grows, your total operating budget is likely to be made up of several individual budgets such as your marketing or sales budgets.
What your budget will need to include
Projected cashflow - your cash budget projects your future cash position on a month-by-month basis. Budgeting in this way is vital for small businesses as it can pinpoint any difficulties you might be having. It should be reviewed at least monthly. See our guide on cashflow management: the basics.
Costs - typically, your business will have three kinds of costs:
* fixed costs - items such as rent, rates, salaries and financing costs
* variable costs - including raw materials and overtime
* one-off capital costs - for example, purchases of computer equipment or premises
To forecast your costs, it can help to look at last year's records and contact your suppliers for quotes.
Revenues - sales or revenue forecasts are typically based on a combination of your sales history and how effective you expect your future efforts to be.
Using your sales and expenditure forecasts, you can prepare projected profits for the next 12 months. This will enable you to analyse your margins and other key ratios such as your return on investment. See our guide on how to forecast and plan your sales.
Use your budget to measure performance
If you base your budget on your business plan, you will be creating a financial action plan. This can serve several useful functions, particularly if you review your budgets regularly as part of your annual planning cycle.
Your budget can serve as:
* an indicator of the costs and revenues linked to each of your activities
*
a way of providing information and supporting management decisions throughout the year
* a means of monitoring and controlling your business, particularly if you analyse the differences between your actual and budgeted income
Benchmarking performance
Comparing your budget year on year can be an excellent way of benchmarking your business' performance - for example, you can compare your projected figures with previous years to measure your performance. See our guide on how to forecast and plan your sales.
You can also compare your figures for projected margins and growth with those of other businesses in the same sector, or across different parts of your business.
Key performance indicators (KPIs)
To boost your business' performance you need to understand and monitor the key 'drivers' of your business - a driver is something that has a major impact on your business. There are many factors affecting every business' performance, so it is vital to focus on a handful of these and monitor them carefully.
The three key drivers for most businesses are:
* sales
* costs
* working capital
Any trends towards cashflow problems or falling profitability will show up in these figures when measured against your budgets and forecasts. They can help you spot problems early on if they are calculated on a consistent basis.
Review your budget regularly
To use your budgets effectively, you will need to review and revise them frequently. This is particularly true if your business is growing and you are planning to move into new areas.
Using up-to-date budgets enables you to be flexible and also lets you manage your cashflow and identify what needs to be achieved in the next budgeting period.
Income and expenditure
There are two main areas to consider when reviewing your budget - income and expenditure.
Your actual income - each month, you should compare your actual income with your sales budget. To do this, you should:
*
analyse the reasons for any shortfall - for example, lower sales volumes, flat markets and underperforming products
*
consider the reasons for a particularly high turnover - for example, whether your targets were too low
* compare the timing of your income with your projections and check that they fit
Analysing these variations will help you to set future budgets more accurately and also allow you to take action where needed.
Your actual expenditure - regularly review your actual expenditure against your budget. This will help you to predict future costs with greater reliability. You should:
* look at how your fixed costs differed from your budget
* check that your variable costs were in line with your budget - normally variable costs adjust in line with your sales volume
* analyse any reasons for changes in the relationship between costs and turnover
* analyse any differences in the timing of your expenditure - for example, by checking suppliers' payment terms
If you actually made it to this part of the article, well done, you need some praise for your sense of endurance. The point really is that you now need to go beyond just reading this article and get your business plan done soonest to ensure that you make your mistakes on paper and that the business benefits from your planning and foresight.
Thursday, 24 March 2011
Wednesday, 2 March 2011
Creating the project outline
Whether you are sourcing business finance, writing a business plan or getting a new business project of the ground, designing the project plan will be one of the more important processes with which you get involved with. The project plan in many ways will define not only what resources you may need but also what the potential hiccups are that you can expect, how long the project will take and of course who will be involved. If its a start-up project you may not always of accurate data on which you make your decisions so this may be even more challenging.
The project outline is the last step you have to undergo when you are involved in project design and planning. It provides a summary of the project, sometimes called a project brief, and describes in broad terms the goals and in specific terms, the objectives of the project. It also lists down the activities and strategies to achieve the project objectives, the target outcomes, the project evaluation techniques, project monitoring system to be employed and the proposed budget.
A good project outline is one of the bases for funding approval, therefore it should be concise, well-written and include all the important details in an easy to follow and understandable format.
1. The first thing you need to do is write a problem statement. This describes the problems that triggered the need for a project design.
2. Follow that up with the goals or aims of the project. The statement should describe the ultimate aim of the project, in broad terms. They will define the expected results based on the objectives that you have set.
3. Create specific statements for the objectives of the project. Objectives are the details on what you are going to do to achieve the project goals. This is where you outline the strategies and activities you will employ to eventually achieve the long-term project goals. You will define the changes that will eventuate through the employment of strategies to solve the problems that the project aims to address. The objectives will provide the answers to the problem that was stated in the problem statement. Careful thinking is required when you write the objectives because these are the ones that will deliver measurable and realistic results.
4. You should include the ways in which you plan to evaluate the success or failure of the project, with set baselines and indicators in which to measure the results against. The monitoring system should help demonstrate the effectiveness of the project strategies that will be employed and make the project accountable to the donors and supporters.
5. A good project outline should include a description of the monitoring system that will be used to oversee the implementation and progress of the project. It should also include a provision for implementing alternative methods should some of the activities fail to deliver the desired results at any point in the project implementation. The monitoring system will check if the project is on schedule, chart its progress and get feedback from target audiences.
6. Your project outline should also include a workable time line in which to implement the project from start to finish and measure results.
7. Finally, you should include a proposed budget to effectively implement the project. This should include a detailed breakdown on how you plan to allocate finances, and your contingency measures. The budget must follow the guidelines set by the donors and sponsors.
Its important that the outline of the project clearly defines the various elements of the project, what will be done buy who and at which point in time. In addition you also want to be clear on what should be achieved by the implementation of the project, what and how you are going to achieve the aim, ways to monitor, supervise and measure the effectiveness of the project as well as how much you need to launch the project and make it work. Getting this stage of the process right will almost certainly ensure that you save plenty of time and effort later on. Failing to plan in many ways is really planning to fail so make sure you spend the necessary time and effort on this very crucial element.
The project outline is the last step you have to undergo when you are involved in project design and planning. It provides a summary of the project, sometimes called a project brief, and describes in broad terms the goals and in specific terms, the objectives of the project. It also lists down the activities and strategies to achieve the project objectives, the target outcomes, the project evaluation techniques, project monitoring system to be employed and the proposed budget.
A good project outline is one of the bases for funding approval, therefore it should be concise, well-written and include all the important details in an easy to follow and understandable format.
1. The first thing you need to do is write a problem statement. This describes the problems that triggered the need for a project design.
2. Follow that up with the goals or aims of the project. The statement should describe the ultimate aim of the project, in broad terms. They will define the expected results based on the objectives that you have set.
3. Create specific statements for the objectives of the project. Objectives are the details on what you are going to do to achieve the project goals. This is where you outline the strategies and activities you will employ to eventually achieve the long-term project goals. You will define the changes that will eventuate through the employment of strategies to solve the problems that the project aims to address. The objectives will provide the answers to the problem that was stated in the problem statement. Careful thinking is required when you write the objectives because these are the ones that will deliver measurable and realistic results.
4. You should include the ways in which you plan to evaluate the success or failure of the project, with set baselines and indicators in which to measure the results against. The monitoring system should help demonstrate the effectiveness of the project strategies that will be employed and make the project accountable to the donors and supporters.
5. A good project outline should include a description of the monitoring system that will be used to oversee the implementation and progress of the project. It should also include a provision for implementing alternative methods should some of the activities fail to deliver the desired results at any point in the project implementation. The monitoring system will check if the project is on schedule, chart its progress and get feedback from target audiences.
6. Your project outline should also include a workable time line in which to implement the project from start to finish and measure results.
7. Finally, you should include a proposed budget to effectively implement the project. This should include a detailed breakdown on how you plan to allocate finances, and your contingency measures. The budget must follow the guidelines set by the donors and sponsors.
Its important that the outline of the project clearly defines the various elements of the project, what will be done buy who and at which point in time. In addition you also want to be clear on what should be achieved by the implementation of the project, what and how you are going to achieve the aim, ways to monitor, supervise and measure the effectiveness of the project as well as how much you need to launch the project and make it work. Getting this stage of the process right will almost certainly ensure that you save plenty of time and effort later on. Failing to plan in many ways is really planning to fail so make sure you spend the necessary time and effort on this very crucial element.
The real differences between a business plan and a business proposal
There are some very real differences between a business plan and a business proposal. Not only will the audience be very different but the process of creating the document and the type of thinking needed to secure a successful outcome will also be vastly different. A business plan template and a business proposal template for the two documents should be easily found and this may help you to understand the difference more clearly.
Some of the most important distinctions can be made by being clear on the issues below.
1. Know what a business plan is. A business plan is drawn up by anybody who wants to start up a business. In the business plan, the vision, mission and goal of the business should be laid out. Business plans map out timetables on when to expect returns on your investments, marketing strategies to further reach out to as many clients as possible, and predictions on future capital infusion.
2. Know how important a business plan is. Capital is the lifeblood of a business while the business plan is the mechanism that assures that everything functions as planned. Even a small business venture will need a business plan which the owner can check periodically to guide him and enable assessment of his venture's performance and troubleshoot if any is needed.
3. Know what a business proposal is. In general, proposals are in the form of offers made by a seller to a buyer.
4. Know the various types of proposals. Firstly, there is the unsolicited proposal where a seller introduces a product or a service and is usually in the form of fliers or brochures. Secondly, there is the informal proposal. For instance, you plan to have a team building activity for your employees and you call different resorts to inquire. They then send you an email detailing their rates on use of rooms, group meals, etc. And lastly, there is the formal proposal. This will usually entail bidding. Say your food manufacturing business will need additional equipment to meet increased product demand. You then inform these equipment manufacturers or sellers that you're accepting proposal bids to get the best price possible. Formal proposals are more complex and will need detailed information on how the seller plans to meet the buyer's requirements, cost summary and implementation schedule.
Creating the business itself will of course not be a straight forward task but once you have the business plan sorted out, at least you should have a very clear idea on exactly where you are going as well as some of the strategies on how to get there.
Some of the most important distinctions can be made by being clear on the issues below.
1. Know what a business plan is. A business plan is drawn up by anybody who wants to start up a business. In the business plan, the vision, mission and goal of the business should be laid out. Business plans map out timetables on when to expect returns on your investments, marketing strategies to further reach out to as many clients as possible, and predictions on future capital infusion.
2. Know how important a business plan is. Capital is the lifeblood of a business while the business plan is the mechanism that assures that everything functions as planned. Even a small business venture will need a business plan which the owner can check periodically to guide him and enable assessment of his venture's performance and troubleshoot if any is needed.
3. Know what a business proposal is. In general, proposals are in the form of offers made by a seller to a buyer.
4. Know the various types of proposals. Firstly, there is the unsolicited proposal where a seller introduces a product or a service and is usually in the form of fliers or brochures. Secondly, there is the informal proposal. For instance, you plan to have a team building activity for your employees and you call different resorts to inquire. They then send you an email detailing their rates on use of rooms, group meals, etc. And lastly, there is the formal proposal. This will usually entail bidding. Say your food manufacturing business will need additional equipment to meet increased product demand. You then inform these equipment manufacturers or sellers that you're accepting proposal bids to get the best price possible. Formal proposals are more complex and will need detailed information on how the seller plans to meet the buyer's requirements, cost summary and implementation schedule.
Creating the business itself will of course not be a straight forward task but once you have the business plan sorted out, at least you should have a very clear idea on exactly where you are going as well as some of the strategies on how to get there.
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