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Strategies, Planning and Developing Effective Business plan

Executive Management Orientation Program

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Introduction and Concepts

Globalisation and the Modern Business Environment

Traditionally management has been concerned with internal aspects of the organisation e.g productivity, cost reductions…etc

Aspects which managers have control over

Elimination of trade barriers between countries and phenomenal development of ICT has created a global business environment

Environment characterised by intense competition, rapid product

development and innovation and also creation of new markets

Opportunities and challenges presented by the new global business environment to multi-national and national organisations are immense

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Management in the 21 century

Globalisation is affecting organisations in new ways The external environment of an organisation has now significant impact

on the way organisations manage their business processes in terms of planning, organising, leading and controlling

Managers now need to respond to rapid pace of events created by the

external environment

Strategic thinking and planning are increasingly becoming vital characteristics of the 21 century management

Successful organisations now have the necessary skills to create, acquire and transfer knowledge and to change their behavior to reflect new knowledge and insights

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Strategic Management – conceptual model

Model is based on four elements

The following figure expands the elements of the model

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Environmental Scanning

Strategy Formulation

Mission

Objectives

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Strategies

Policies

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Strategy Implementation

Programmes

Budgets

Procedures

Evaluation and Control

Feedback/Learning Process

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Strategic Decisions Involved in Management

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External And Internal Scanning Of The Environment

Scanning the External Environment

Covers monitoring, evaluation and dissemination of information from the external environment to key people within an organization

It is important to identify and analyize the variables (forces) operating within the two components of the external environment viz. the societal and the task

The societal environment. This includes variable such as:

Economic – interest rates, inflation rates, exchange rates, unemployment levels , Membership of regional economic associations, etc.

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Technological – new products, technologies, automation, R&D activities , patent - trademark protection, telecommunications infrastructure

Political/legal - Environmental laws, tax laws, gov. incentives, antitrust regulations, foreign trade regulations, laws of hiring …etc

Sociocultural – age distribution, regional shifts in population, growth rate, life style changes, level of education… etc

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The task environment. The environment includes variables (forces) such as

Customers

Competitors

Suppliers

Governments

Labour unions

Communities

Share holders

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Analysis of Societal EnvironmentEconomic, Sociocultural, Technological, Political-Legal factors

Market Analysis

CommunityAnalysis

Interest Group Analysis

CompetitorAnalysis

SupplierAnalysis

GovernmentAnalysis

Selection of Strategic Factors

•Opportunities•Threats

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It is important when analysing the external variables/forces to identify and prioritise the strategic factors in terms of their probability of occurrence and the probable impact on the corporation, in order to effectively monitor them.

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Industry Analysis: Analysing the Task Environment

Porter’s Approach to Industry Analysis

Model refers to the competitive forces that determine the industry profit potential

The forces include

• Threat of new entrants• Rivalry among existing firms• Threat of substitute products/services• Bargaining power of buyers• Bargaining power of suppliers• Power of other stakeholders

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Threats of new Entrants

Bring new capacity and desire to gain market share

The threat depends on entry barriers such as:

• Economies of scale

• High capital requirement

• Product differentiation

• Switching costs

• Access to distribution channels

• Government policy

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Rivalry among existing firms

Level of rivalry depends on:

• Number of competitors• Rate of growth in industry• Product characteristics • Amount of fixed costs• Capacity• Exit barriers• Diversity of rivals

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Threats of substitute products

Substitutes are different products that satisfy the same need

Substitutes can limit pricing levels of existing products

Bargaining power of buyers Power of buyers depend on:

Proportion of seller’s product

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Potential of backward integration by buyer

Large number of suppliers providing undifferentiated products

Low cost of changing suppliers

Purchased product represents high % of buyer’s costs

Buyer earns low profits

Purchased product has little impact on final quality of product

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Bargaining power of suppliers

Supplier industry dominated by a few companies

Product/service unique or has built up switching costs

Substitutes not readily available

Suppliers able to integrate forward

Purchasing industry buys small portion of supplier products

Relative power of other stakeholders

Include government, local communities, special interest groups, unions and international institutions

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Scanning the Internal Environment

It is imperative that organizational analysis is conducted with the main objective of identifying the critical strengths and weaknesses that will determine whether an organization is able to capitalize on the opportunities and avoid the threats in the external environment

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Core and distinctive competencies

Basically the competency (ies) of an organization is it’s ability to coordinate its capabilities in the provision of its products and services. A core competency refers to the activities that the organization can do very well.

A core competency becomes a distinctive competency when it is superior to those of competition

Distinctive competencies are judged on the basis of value, rareness, imitability and organisation

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Using resources to gain competitive advantage

As resources are building blocks of competitive advantage, strategic analysis approach will need to cover

• Strengths and weaknesses of the organization resources • How the strengths are related to specific capabilities and

core competencies

• How the competencies are able to provide sustainable competitive advantage

• Identifying resource gaps and investment in upgrading weaknesses

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Determining the sustainability of an advantage

Two factors determine the sustainability a competitive advantage

• Durability – the rate at which resources ,capabilities and competencies depreciate or become obsolete

• Imitability – the ease and rate at which the resources….etc

can be imitated

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• Business Models

A business model of an organisation is composed of

Who it serves

What it provide

How it makes money

How it differentiates and sustains a competitive advantage

How it provides its product/service

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Typical BM include

Customer Solution Model

Profit Pyramid Model

Installed Base Model ( Multi – component model )

Advertising Model

Time Model

Efficiency Model

Blockbuster Model

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• Value-Chain Analysis

• Definition

VC is a sequence of value-creating activities in a business process

Value Chain for Manufactured Product

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Industry value-chain analysis

VC of majority of industries can be divided into upstream and downstream segments

Analysis of an industry can be made in terms of profit margin available at any point along the VC

For a company operating up + down the value chain, there is usually an area of primary expertise where its primary activities lie

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• Corporate value-chain Analysis

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Analysis of corporate value chain involves

• Examination of each product VC. Identify strengths and weaknesses, competitive advantage created by strengths (if any) and possible distinctive competencies

• Examination of linkages within each product lines VC

• Examination of potential synergies among VC of different product lines or business units to accomplish economies of scale and of scope

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Scanning Functional Resources and Capabilities

Organizational structures

Examination of strengths and weaknesses of an organizational functional areas is a good starting point for analysis of the organizations’ value chain

Organisational structure vary a great deal

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A variant to divisional structure is the conglomerate structure

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Corporate culture

Beliefs, values and expectations learned and shared by the corporate staff

Culture reflects the dominant orientation of the company. It conveys a sense of identify for employees and helps promote employees commitment to the corporate goals

It also Promotes stability of the organisation as a social system

Strategic marketing issues

e.g market position and segmentation, marketing mix , product life cycle and brand and corporate reputation

Strategic financial issues

e.g financial leverage and capital budgeting

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Strategic R&D issues

e.g technical competence, technology transfer. Also with R&D mix (product R&D and process R&D)

Strategic operations issues e.g intermittent and continuous systems

Strategic HRM e.g use of cross – functional teams in concurrent engineering, temporary

and part time workers

Strategic information systems / technology issues

e.g impact on performance and supply chain-management

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Strategy Formulation – Business Strategy

Situational Analysis: SWOT Analysis

Situational analysis deals with relating external opportunities with internal strengths. Also with dealing with external threats and internal weaknesses

SWOT analysis is a well established analytical tool for situational analysis

SWOT analysis often criticized for including ambiguous statements, long lists of factors which are not prioritised. Observations are also often subjective

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Generating a Strategic Factors Analysis Summery (SFAS)

The SFAS matrix combines the critical external and internal factors from EFAS and IFAS to identify the important strategic factors which need to be considered when formulating business strategies

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Review of Mission and Objectives

It is imperative that an organisation has a clear communicable mission which acts as a unifying theme for its business

Often the cause of problems in organisational performance is unclear or ambiguous mission statement

Also company’s objectives may not be clearly stated and do not therefore provide real guidance to management and employees

It is therefore important to continuously review objectives to ensure that they are both challenging and achievable

If a gap exists between planned achieved objectives, then either strategies have to be changed or objectives adjusted to be more realistic

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Business Strategies

Objective of BS is to create or improve the competitive position of an organisation or a business units products/services

Porter’s Competitive Strategies

Two fundamental issues need to be addressed:

Should an organisation compete on basis of lower cost or should it differentiate its products/services on other basis such as quality?

Should competition be head to head with competitors for market share or should it focus on a niche market

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Two generic strategies proposed:

Cost leadership – aims at mass market. Requires efficient-scale facilities, diligent pursuit of cost reduction, tight cost and overhead control. May also require minimisation of R&D, sales and advertising activities

Differentiation – aims at mass market. Requires creation of a product or service that is perceived by the customer as unique

Cost of differentiation needs to be paid for as a premium

Differentiation can result in earning above average returns because of resulting brand loyalty

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Above strategies may also be Cost focus or Differentiation focus. Both aim to serve specific buyer group or market niche

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Issues in competitive strategies

• Quality is increasingly becoming a strategic issue in today’s business environment and successful organisations differentiate their products and services in the area of quality

• The Following table identifies eight dimensions of quality

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Cooperative strategies

Intended to create a competitive advantage. Can be divided into two types

Collusion – Explicit or tacit. Intended to reduce output and increase prices

Strategic alliance – Intended to achieve mutually beneficial strategic objectives. Can help increase profitability of the members and have positive effect on value

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Strategy Formulation – Corporate Strategy

Introduction

Corporate strategy deals with 3 major aspects of organisational development, namely:

The organisation’s strategic direction, sometimes referred to as directional strategy. The direction may be that of growth, stability or retrenchment

The markets in which the organisation operates, referred to as portfolio strategy

The manner in which corporate management coordinates activities + transfers resources and cultivates capabilities among business units, referred to as parenting strategy

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Directional Strategies

At a corporate level, senior managers need to consider the following strategic issues:

Should the corporation expand, continue operations unchanged, or cut back?

Should operations remain within current industry or should they be diversified?

If a growth strategy is adopted should the expansion be nationally or globally? Should the growth be effected organically or by means of acquisitions, mergers or strategic alliances?

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Types of directional strategies

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Growth strategy

Concentration

Refers to growth in the organisation’s own product lines Two types of concentration strategies:

• Vertical integration. This can be either:

Forward – Organisation becomes it own distributor Backward – Organisation becomes it own supplier

• Horisontal integration – Growth achieved by expanding product lines into other geographic location or by expanding product range into existing markets. Can be achieved by merging with other companies in the same business

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Diversification strategies

Growth is achieved through either related or unrelated diversifications

• Related diversification. Refers to diversification into a related industry to achieve strategic fit

• Unrelated diversification. Growth is achieved by diversifying into unrelated business. Sometimes referred to as conglomerate diversification. This strategy is often adopted when the objective is mainly financial and therefore serves as a means of reducing risk

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Stability Strategy

Appropriate if organisation is operating in a predictable environment

Often followed by small businesses operating in a ‘niche’ markets, enjoying adequate growth

Considered useful in the short run but extremely risky in the long term

There are different types of SS, namely:

• Pause/Proceed-with-Caution Strategy. Often considered a temporary strategy when environment is not clear or when organisation needs to consolidate resources

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• No-Change Strategy. Based on a decision to continue existing operation and policies for foreseeable future.

Often followed when there are no obvious opportunities or threats or

significant internal strengths and weaknesses

• Profit Strategy. Often adopted when organizational performance is declining (e.g low sales) by reducing investment and expenditure (e.g. R&D, sales force, advertising….etc)

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Retrenchment Strategy

Used when an organisation performance and competitive position are weak

An organisation in this position may opt for:

• Turnaround strategy

• Capitive company strategy

• Sell-Out/Divestment strategy

• Liquidation strategy

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Portfolio Analysis

Used when corporate strategy involves a number of business

Boston Consulting Group (BCG) matrix

Provides a framework for understanding diverse businesses

Helps managers establish priorities for making resource allocation decisions

Business classified in terms of:

• Market share

• Anticipated market growth

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The BCG Matrix

Anticipated Growth Rate

Stars Question Marks

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Cash Cows Dogs

High Low

High

Low

Market Share

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Strategic implications of the matrix

cash cows- “milk”

use cash to invest in stars and question marks

Stars – require heavy investment

eventually will become cash cows

Question marks – two strategies

invest to transform them into stars

Divest

Dogs

Sold off or liquidated

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Functional Strategies

Functional strategies deal with the means to achieve corporate and business objectives and strategies

Essentially it deals with improving functional capabilities in order to provide and sustain competitive advantage

The direction a functional strategy takes is governed by the strategy of the business unit

Strategy Formulation – Functional Strategy

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Marketing Strategy

Marketing strategy is concerned with product development,

pricing, selling and distribution

Marketing strategy may take the form of market development which aims at increasing market share for existing products or alternatively developing new markets for current products

Marketing strategy may also take the form of product development which aims at developing new products for existing markets or, alternatively, developing new products for new markets

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Pricing strategies may include skim pricing ie high price for pioneering products when demand is high and competitors are few

Penetration pricing, on the other hand, enables a pioneering organisation to accelerate market development by gaining dominant market share

Advertising and promotion include push strategy (heavy promotion by discounting and special offers to gain shelf space). Alternatively a pull strategy may be used to attract products to distribution channels. Advertising in this case aims at building brand awareness to stimulate demand by consumers

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Financial Strategy

Intended to examine and select the most appropriate course(s) of

action to deal with the financial implications of corporate and business level strategic options

Financial strategy objective is to maxmise the financial value of the firm

Financial strategy deals with strategic decisions such as equity/debt financing

Also with trade-off between debt/equity financing and internal financing via cash flow

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Research and Development (R&D) Strategy

Deals with product and process improvements also with different

types of R&D e.g basic, product, process

R&D strategies may focus on either technological leader or technological follower approaches

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Operations strategies

Operations strategies addresses the following issues

• How the product is manufactured

• Where the product is manufactured

• Extent of integration of production process

• Deployment of resources

• Supplier relationship

Modern manufacturing techniques has given rise to alternative production strategies e.g

• Advance Manufacturing Technology (AMT)

• Modular manufacturing

• Mass customisation

• Lean manufacturing

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Purchasing strategies

Objective is to secure supply of raw materials, parts and supplies needed

to perform the operations functions

Purchasing strategies include:

• Multiple sourcing – often considered to have the advantages of promoting supplier competition and ensuring continuity of supplies

• Sole sourcing – considered to promote quality. Supplier relationship critical used in JIT system to simplify production process and reduce inventory

The strategy significantly reduces transaction costs

• Parallel sourcing – Two suppliers are sole suppliers of two different parts and they are also at the same time backup suppliers for each other’s parts

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Logistics strategies

Deals with flow of products into and out of the manufacturing

process

Strategies may be based on:

• Centralisation

• Outsourcing

• Internet

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Human Resources Management Strategies

Human Resources Management Strategies are greatly

influenced by the type of organisation's business and its corporate strategy

Some organisations opt for hiring low-skilled employees to undertake repetitive work and receive low pay

Alternatively organisations can hire relatively highly paid skilled employees which can be trained to participate in self managing teams

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Information Technology Strategies

Information Technology is increasingly providing organisations with powerful

tools to help market their products and enhance their business value chain

Pioneered by FedEx, application of Information Technology now enables customers to track their packages using its website

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The Sourcing Decision: Location of Functions

Functional strategies need to be built on the capabilities of the function

If capabilities are not strong the function could be outsourced

Outsourcing errors include:

• Outsourcing core activities

• Selection of wrong supplier

• Poor contractual linkage

• Ignoring personnel issues

• Loosing outsourcing control activities

• Overlooking hidden costs of outsourcing

• Failing to plan an exist strategy

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Strategic Choice: Selecting the Best Strategy

Process of strategic choice

• Strategic choice involves a detailed evaluation of alternative strategies and selection of the best strategy

• There is evidence that consensus is a good basis for

strategic choice

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Developing Policies

Once a strategy has been selected, policies need to be

developed

Policies define broad guidelines for implementation. Policies provide guidance for decision making

An organisation operates on day-to-day basis under such policies

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Strategy Implementation, Evaluation and Control

Strategy Implementation

Involves development of programmes budgets and procedures aimed at achieving the objectives and based on the organization's strategies and policies

Common problems associated with implementation include:

Implementation period longer than planned

Unexpected major problems surfaced

Ineffective coordination of activities

Crises and ‘fire fighting’ taking focus away from implementation

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Involved employees incapable of performing additional jobs

Employees at lower level inadequately trained

Impact of external environmental factors

Lack of effective leadership by departmental managers

Implementation tasks + activities poorly defines

Poor monitoring of activities

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• Who implements strategy?

Often more diverse group of people than those involved in planning

Implementation undertaken by almost every body in the organization

Important that changes in mission, objectives, strategies and policies + their importance to the company are clearly communicated to all operations people

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• What Must Be Done

Plans They make strategy action oriented e.g introduction of lean six sigma programmes through Xerox corporation

BudgetsDeveloping a budget is the last real check an organisation has on feasibility of the selected strategy

ProceduresStandard Operating Procedures (SOP’s) provide activities required to complete programmes. They need to be regularly updated. For new strategies current SOP’s may require to be changed

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Also important that synergy is achieved between divisions, departments….etc. Synergy can result from:

Shared know how

Coordinated strategies

Shared tangible resources e.g. R&D

Economies of scale and scope

Pooled negotiating power

New business creation

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• How is strategy to be implemented? Organising for Action

Very often introduction of a new strategy or changes in existing one lead to changes in organisation structure

Stages of corporate development

Impact of organisational life cycle on corporate strategy and likely structure need to be carefully understood

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• International Issues in Strategy Implementation

The organisation structure strongly influenced by the nature of the organisations international activities viz multidomestic or global

International strategic alliances (e.g JV and licensing) is a means of gaining entry into other countries. Criteria for successful strategic alliances are:

Partners have a shared vision about the potential for joint value creation

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Alliance important to both partners, especially to top management

Achievement of realistic objectives dependent on both partners

Joint activities must have added value for customers and partners

Alliance accepted by stakeholders

Partners contribute key strengths but protect core competencies

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Evaluation and Control

E & C model

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Objective of E&C is to ensure organization is achieving what it set

out to accomplish

Step 1 in model deals with measure determination. This is done by top and operational management. They determine what processes and results need monitoring

In step 2 agreed and acceptable measures of performance results are established. Standards may cover all stages of processes

Step 3 and 4 deals with regular measurement of actual performance and comparison with agreed standards of performance

The last step (step5) deals with the corrective actions required if performance does not meet standards

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• E & C in Strategic Management

In the process of E & C management can be faced with important strategic and operational decisions if strategic objectives are unlikely to be met.

Systematic evaluation of implemented strategy needs to be undertaken. This is shown in the following diagram

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• Measuring Performance

Commonly used measure such as ROI is becoming inadequate in evaluating performance of the strategic plan which may include employee development, social responsibility….etc

ROI is only limited to giving indications of what happened (in terms of profitability) not what is happening or what is likely to happen

Steering controls are now used as measures of variables that influence future profitability. Typical measure is inventory turnover

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Types of control

Input controls Focus on resources e.g skills, abilities and value

Behavior controls Deal with activities which generate performance e.g policies, rules, SOP’s….etc. Also ISO 9000, 14000….etc

Output controls Specify end result of behaviors such as objectives, performance targets and milestones

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Activity Based Costing (ABC)

An accounting techniques based on allocating indirect and fixed costs to individual products or product lines

Enterprise Risk Management (ERM)

ERM is being adopted because of increasing amount of environmental uncertainty which can impact the whole organisation. Use of scenario analysis to identify key business risks

Management of risks involves identifying risks, analysing scale of impact and likelihood and then measuring the risks using an agreed standard

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Primary Measures of Corporate Performance

Simple financial measures are now being replaced by more meaningful measures for assessing the success or failure of a strategy

Stakeholder Measures – These are based on direct and indirect impact of organizations activities on stakeholder interest.

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Balanced Scorecard Approach – Covers financial and non financial measures e.g

Financial

Customer

Internal business perspective

Innovation and learning

Top management and board of director evaluation

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Guidelines for Proper Control

Control should involve minimum amount of information needed to give reliable picture of events

Control should monitor important activities and results, regardless of

measurement difficulty

Controls should be timely to enable effective corrective actions

Both long-term and short-term controls should be used

Control should deal with major deviation from agreed tolerances

Focus on reward of meeting or exceeding standards rather than punishment for failing to meet standards

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Developing A Business Plan

Why Write a Business Plan? 1. The process of putting a business plan together forces the people

preparing the plan to look at the business in an objective and critical manner

2. It helps to focus ideas and serves as a feasibility study of the business's chances for success and growth.

3. The finished report serves as an operational tool to define the company's present status and future possibilities.

4. It can help management run the business successfully

5. It is a strong communication . It defines the mission, competition, management and personnel. The process of constructing a business plan can be a strong reality check

6. The finished business plan provides the basis for your financing proposal

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Business Plan Components

The Executive Summary

The first page of the business plan should be a persuasive summary that will entice areader to take the plan seriously and read on. The Executive Summary should follow thecover page, and not exceed two pages in length.

The summary should include: • A brief description of the company's history

• The company's objectives

• A brief description of the company's products or services

• The market the business will compete in

• A persuasive statement as to why and how the business will succeed, discussing the business's competitive advantage

• Projected growth for the company and the market

• A brief description of the key management team

• A description of funding requirements, including a time-line and how the funds will be used

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The Product or Service

• It is important for the reader to thoroughly understand your product offering or the services you currently provide or plan on providing.

• It is important to explain this section in layman's terms to avoid confusion. Do not overwhelm the reader

• It is important to discuss the competitive advantage your product or service has over the competition. Or, if you are entering a new market, you should answer why there is a need for your offering.

• Discuss any barriers that you face in bringing the product to market, such as government regulations, competing products, high product development costs, the need for manufacturing materials, etc.

• Areas that should be covered in this section include:

– If you are still in the development stage, what is the roll out strategy or timeline to bring the product to market?

– What makes your product or service unique? What competitive advantage does the product or service have over its competition?

– Can you price the product or service competitively and still maintain a healthy profit margin?

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The Market

• Investors look for management teams with a thorough knowledge of their target market. If you are launching a new product, include your marketing research data. If you have existing customers, provide an analysis of who your customers are, their purchasing habits, their buying cycle.

• This section of the plan is extremely important, because if there is no need or desire for your product or service there won't be any customers. If a business has no customers, there is no business.

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• This section of the plan should include:

– A general description of your market

– The niche you plan on capitalizing on and why

– The size of the niche market. Include supporting documentation

– A statement and supporting documentation as to why you believe there is a need for your product or offering by this market

– What percentage of the market do you project you can capture?

– What is the growth potential of the market? Include supporting documentation How will you satisfy the growth of the market?

– How will you price your goods or services in the growing competitive market?

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The Marketing Strategy • Once you have identified who your market is, you'll need to explain your strategy for

reaching the market and distributing your product or service. Potential investors will look at this section carefully to make sure there is a viable method to reach the target market identified at a price point that makes sense.

• Analyze your competitors' marketing strategies to learn how they reach the market. If their strategy is working, consider adopting a similar plan. If there is room for improvement -- work on creating an innovative plan that will position your product or service in the minds of your potential customers.

• Developing an innovative marketing plan is critical to your company's success. Investors look favorably upon creative strategies that will put your product or service in front of potential customers. Spend time developing this section.

• Once you have identified how you will reach the market, discuss in detail your strategy for distributing the product or service to your customers. Will you mail order, personally deliver, hire sales reps, contract with distributors or resellers, etc.?

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The Competition

• Understanding your competition's strengths and weaknesses is critical for establishing your product's or service's competitive advantage. If you find a competitor is struggling, you need to know why, so you don't make the same mistake.

• Specific areas to address in this section are:

1. Identify your closest competitors. Where are they located? What are their revenues? How long have they been in business? 

2. Define their target market. 

3. What percentage of the market do they currently have? 

4. How do your operations differ from your competition? What do they do well? Where is there room for improvement? 

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1. In what ways is your business superior to the competition? 

2. How is their business doing? Is it growing? Is it scaling back? 

3. How are their operations similar to yours and how do they differ? 

4. Are there certain areas of the business where the competition surpasses you? If so, what are those areas and how do you plan on compensating?

• Analyzing your competitors should be an ongoing practice. Knowing your competition will allow you to become more motivated to succeed, efficient and effective in the marketplace.

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Operations

• This component deals with how will you implement the idea. What resources and processes are necessary to get the product to market? This section of the plan should describe the manufacturing, R&D, purchasing, staffing, equipment and facilities required for your business.

• You'll want to provide a roll out strategy as to when these requirements need to be purchased and implemented. Your financials should reflect your roll out plan.

• In addition, describe the vendors you will need to build the business. Do you have current relationships or do you need to establish new ones? Who will you choose and why?

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The Management Team

• For most investors the experience and quality of the management team is the most important aspect they evaluate when investing in a company. Investors must feel confident that the management team knows its market, product and has the ability to implement the plan. In essence, your plan must communicate management's capabilities in obtaining the objectives outlined in the plan.

• If your team lacks in a critical area, identify how you plan on compensating for the

void. Whether it is additional training required or additional management staff needed, show that you know the problem exists, and provide your options for solutions.

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• When preparing this section of the business plan you should address the following five areas:

1. Personal history of the principals:

– Business background of the principals – Past experience -- tracking successes, responsibilities and capabilities – Educational background (formal and informal) – Personal data: age, current address, past addresses, interests, education,

special abilities, reasons for entering into a business  

2. Work experience:

– Direct operational and managerial experience in this type of business – Indirect managerial experiences

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3. Duties and responsibilities: – Who will do what and why – Organizational chart with chain of command and listing of duties – Who is responsible for the final decisions?

  4. Salaries and benefits:

– A simple statement of what management will be paid by position – Listing of bonuses in realistic terms – Benefits (medical, life insurance, disability...)

 

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5. Resources available to your business:

– Insurance broker's)

– Lawyer

– Accountant

– Consulting group's) – Small Business Association

– Local business information centers – Chambers of Commerce

– Local colleges and universities

– Federal, state, and local agencies

– Board of Directors – World Wide Web (various search engines)

– Banker

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Personnel

The success of a business can often be measured by its employees. consumers will goelsewhere if they don't receive prompt and courteous service. You must consider thefollowing questions in completing this section of the business plan: 1. What are your current personnel needs (full or part-time)? How many employees do you

envision in the near future and then in the next three to five years? 

2. What skills must your employees have? What will their job descriptions be?   

3. Will you be paying salaries or hourly wages?

 

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Financial Data

• One of the first steps to having a profitable business is to establish a bookkeeping system which provides you with data in the following four areas:

• Balance Sheet - indicates what the cash position of the business is and what the owner's equity is at a given point (the balance sheet will show assets, liabilities and retained earnings). 

• Break-Even Analysis - is based on the income statement and cash flow. All businesses should perform this analysis without exceptions. A break-even analysis shows the volume of revenue from sales that are needed to balance the fixed and variable expenses.

• Income Statement - also called the profit and loss statement, is used to indicate how well the company is managing its cash, by subtracting disbursements from receipts.

 

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• Cash Flow - this projects all cash receipts and disbursements. Cash flow is critical to the survival of any business.

• If the goal of your business plan is to obtain financing, you will be required to generate financial forecasts. The forecasts demonstrate the need for funds and the future value of equity investment or debt repayments. This exercise is critical in obtaining capital for your business. To obtain capital from lending institutions you must demonstrate the need for the funding and your ability to repay the loan.

• The forecast that you generate should cover a three to five-year period. This is a period in which realistic goals can be established and attained without much speculation. Forecasts should be broken down in monthly increments.

• Projections and forecasts are an integral part of your financial portfolio. Carefully and accurately state your assumptions. Honesty is the best policy! Over-optimism and over-inflation can lead to failure