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MODULE 8: Business plan

BSC Kragujevac

Trainer: Aleksandar Ostojić

Date:

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Schedule for today…

• 1 hour – introduction to each other, introduction to module, working groups formation and introduction to business planning

• 1 hour – 1st day presentation (business plan structure, choosing ideas and initiation of the business plan preparation)

• 20 min – coffee break• 40 min – joint activities on worksheets • 50 min – daily presentations of prepared worksheets• 10 min – final remarks• 1 hour – individual counseling

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About the Trainer...• MSc in Management; Master degree in Creation and

Development of SMEs in Transition Countries (University of Bologna); Grad. Eng. Of Entrepreneurial Management

• Employed as Assistant at the Faculty of Entrepreneurial Management – course Entrepreneurship; Project Manager consulting company Larive Serbia – part of Larive International, the Netherlands

• 7 years of experience gathered in running family business, work in several privately owned foreign and domestic firms, as well as by working at two faculties

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Day 1 – Introduction to business plan

• How to choose business idea? • Definition of a business plan• The point of business plan preparation• Who uses business plan?• Methodology for business plan preparation• Business plan resume• How to present yourself in the business plan?

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How to choose business idea?

• Some forethoughts for choosing business idea:– Every life problem is a specific business chance – A one that observes is not always capable to spot a

problem (White’s list of problems)– Every problem in life causes the creation of ideas

for its resolving – Of course, not all ideas are equally good (e.g. comb

for bald headed people!!!)

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So…

NOT EVERY IDEA IS A CHANCE, BUT EVERY CHANCE WAS SOMEBODY’S IDEA!!!

• Conclusion: Everything starts with an idea, and in order to get to the idea one must think – do not ever stop thinking!!!

• The next step after the choice of business idea is business plan preparation...

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Definition of a Business Plan

• Business plan is a document in which a business idea is being processed with market and financial tools, in order to prove or disapprove the justification of the business idea implementation.

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• Business plan has the following basic characteristics:– It does not have strictly defined unique form – it is

mostly prepared according to the instructions given by the institution which accepts business plans

– There are no specific qualifications for someone to become professional consultant in business planning

– Business plan is used when starting business, expansion of a company, getting financial resources,etc

– The basic assumption for the business plan preparation, which is in the same time its major defect, is the following: EVERYTHING THAT IS PRODUCED IS SOLD,

EVERYTHING THAT IS SOLD IS ACTUALLY PAID!

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The Point of Business Plan Preparation

– To show the path from point A to point B– To assess all relevant aspects of doing business– To justify the implementation of the business idea– To lower investment risk– To make mistakes on paper – not in reality– To precisely define the actual possibility of business

functioning

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Who uses business plan?

• The first and the most important user of the business plan is the entrepreneur itself

• Besides entrepreneur, business plan is used also by:– Banks– Credit institutions– Business partners– Managers employed at entrepreneur’s company

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Methodology for business plan preparation

• Taking into account the complexity of various methodologies, a unique methodology has been developed for the purpose of this training, adjusted to beginners.

• For effective use of the most of existing methodologies, a specific know-how from finance, management accounting, etc… are necessary.

• Methodology given in this training is a quality base for future upgrade with appropriate consulting help.

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• Methodology for BP preparation (Contents)

1.Resume

2.Present Yourself (Basic Data on Entrepreneur)

3.Market Approach

4.Organization of New Small Enterprise

5.Financial Analysis

6.Final Remarks

Important Notice:

Methodology (Contents) is the basic of the business plan structure. As such, it must be obeyed completely, exactly in the form that was proposed!!!

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The First Title in Your BP - 1 Resume

• The point of resume is to show the most important data about business plan on one page.

• Resume is always at the beginning of the business plan, just after the front page and contents.

• Resume contains some data that the one who prepares BP cannot know at the beginning of the preparation, but despite this, resume is prepared at the very beginning, and finalized at the end of BP preparation.

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_______________________Name

_______________________Address

BUSINESS PLAN For

____________________________________

___________Date

The look of the front page(1st page in the document)BACK

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Contents1. Resume2. Basic Facts about the Entrepreneur

1. Biography2. Available assets3. Available assets needed for business4. Steps conducted until present time 5. Possible credit eligibility

3. Approach to Market1. Subject of the business plan2. Sales market3. Supply market 4. Location analysis

4. Organization of new small enterprise1. Organizational structure2. Technical and technology concept3. Possibilities for further development

5. Financial Analysis1. Overview of the investments2. Sources of funding and obligations

towards them3. Initial balance sheet4. Costs5. Dynamic P/L statement6. Ratio analysis

6. Final evaluation

The look of the “Contents” page(2nd page in the document)

BACK

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RESUME

Name and address

Year of birthEducationBankPropertyBP titleLocationDynamics Activating loan until _________

Purchasing of the equipment _____Start of activities ____________

Duration of BP ____ yrsCurrency Date: ______ 1Eur = ______ RSDTotal investmentsSources of funding Entrepreneur ______; Loan _________

Effects of the BP Average annual gross income _______Average annaul net profit ________Newly employed _________

Contact person

The look of Resume(3rd page in the document)

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Second Title in Your BP - Basic Data About Entrepreneur

• This part of business plan contains the following subtitles:– Biography– Available assets– Available assets needed for business– Steps conducted until present time – Possible credit eligibility

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2.1 Biography • Provides basic data on entrepreneur (age, education,

working experience, business interests, etc)• It is presented in the form of text • Length – around ½ to 1 page• Underneath the text, a tabular overview is given

Name

Date of birth

Place of birth

Education

Working Experience

Example of the tabular overview of the biography:

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2.2 Available Assets• Shown in the form of table• The issue is very important and should be approached carefully• Everything that entrepreneur owns should be shown in the table

No Type of Assets Market Value

1. Land (type, size, location)

2. Premises (type, size, location)

3. Equipment (machines, etc)

4. Vehicles

5. Cash

6. Other

Total

Example of the tabular overview of available assets:

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2.3 Available Assets Needed for Business

• It is shown in the table that looks exactly the same as the one in the previous chapter

• Contains the same or smaller amount of data than the previous table (here, only those assets that will be used in the activity of the future company, or in other words, those assets that will become assets of the company, are listed)

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2.4 Steps Conducted Until Present Time

• At the moment of BP preparation, future entrepreneur has surely already had some activities regarding his business

• Although mostly intangible, these activities are necessary to present in the business plan

• They are shown in the table

No Type of the activities

1. Established contact with suppliers of the equipment

2. Market research done

3. Company registered

Example of the tabular overview of the steps conducted so far

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2.5 Possible Credit Eligibility• This point is very important because very often, BP is used

just to obtain funding. • This point is usually supported by some external

documents such as property deed, contracts, etc)• It is shown in the table

No Type of Eligibility Market Value

1. Personal Assets

1.1

1.N

2. Another Company’s Warranty

2.1

2.n

Example of the tabular overview of the credit eligibility

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• 20 MIN COFFEE BREAK – PLEASE BE PUNCTUAL!!!

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• Now you can start working on your worksheets, and I am here to support and advise you during the work!!! (40 min)

• ............................................................• Presentation of daily work – 50 min

THANK YOU FOR THE ATTENTION AND SEE YOU TOMORROW

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MODULE 8: Business plan

BSC Kragujevac

Trainer: Aleksandar Ostojic

Date:

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Schedule for today…

• 1 hour – introduction and presentation of the day• 1 sat – joint activities on worksheets• 20 min – coffee break• 40 min – joint activities on worksheets• 50 min – group work presentation• 10 min – final remarks of the day• 1 hour – individual counseling

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Day 2 – Approach to Market

• Why am I doing this training?1. Because this is what I usually do for living2. Because this is the only thing I am able to do3. Because there is need to teach people

business skills• POINT – Approach to market is an important part

of the BP because it gives sense to your idea – it shows that you will succeed in selling your product or service because there is a NEED for them!!!

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Third Title in Your BP - 3 Market Approach (Analysis)

• In this part of the business plan, there are 4 subtitles:– Subject of the business plan– Sales market– Supply market– Location analysis

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3.1 Subject of the Business Plan

• In this chapter, an author needs to describe in words what is the basic business idea, i.e. which products and services will be produced and in what quantities.

• Competition products and services should be described, as well as the reasons why planned products and services will be better than the existing ones.

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NoProduct (service) Annual Quantity Annual Turnover

1.

2.

3.

TOTAL

Example of the tabular overview of the products that are subject to BP:

• Tabular overview of the products should be provided

• However, entrepreneurs mostly do not have all resources needed to start, which means that acquiring some assets (equipment, vehicles, offices…) is also the purpose of BP preparation, isn’t it?

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• YES – so certain investing activities which forego the production and sales of foreseen products, are ALSO THE SUBJECT OF THE BUSINESS PLAN.

• These should also be presented in tabular overview.

No Subject of the Business Plan

1. Renovation of the premises

2. Construction works

3. Acquiring new equipment

4. Obtaining licenses

5. -

Example of the tabular overview of the investments that are subject of BP:

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3.2 Sales Market

• Sales market must be thoroughly examined in every BP, due to the simple fact that this is the place where turnover is created.

• If entrepreneur has conducted some activities prior to the BP preparation, these activities have certainly referred to sales market.

• Results of the market surveys conducted in the preparatory phase should be shown at the beginning of this chapter, with detailed explanation of the used methods.

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• Thoroughly examined market (text and/or table) means:• Showing the target group of consumers• Defining geographical area observed• Assuming current average sales of the given

products at the observed markets• Assuming the demand in the future (together with

the factors that influence the demand)• Showing the current suppliers of the given

products (services) – competition• Stating the methods and channels of sales and

distribution• Explain the future pricing policy

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• Within this chapter, it is necessary to explain planned promotional mix, which means:– Advertisements: packaging, brochures, billboards,

radio– Sales facilitation: lotteries, gifts, fairs, exhibitions,

demonstrations– PR: seminars, sponsorships– Selling forms: presentations, meetings– Direct marketing: catalogues, post, e-business

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3.3 Supply Market

• The supply market is also the basic issue in the BP because that is where the majority of costs are created

• This subtitle needs to explain the market in terms of the following characteristics:– Overview of the needed raw materials– Overview of the prices of these materials– Showing the list of suppliers

• Where applicable, these characteristics should be shown in the tabular overview

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3.4 Location Analysis• Location is, by definition, an area in which the activity

is situated – whether we observe the premises, or just the activity itself.

• For all businesses, location is extremely important issue that makes difference between success and failure of the business. Why?– Traffic, – Cheap rents, – Local taxes and laws,– Climate,– Other advantages coming out from the wisely

chosen location.

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• This chapter should pay attention to both macro and micro location (text and/or table), according to some (or all) of the following criteria:• Climate• Local taxes and laws• Connections to major roads• Connections to natural resources (rivers, woods..)• Vicinity of urban areas• Vicinity of shopping malls• Vicinity of the suppliers• Other criteria important for business

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• Now you can start working on your worksheets, and I am here to support and advise you!!! (1 hr of work – 20 min break – 40 min of work)

• ............................................................

• Daily work presentation – 50 min

• Thank you for the attention and see you tomorrow!!!

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MODULE 8: Business plan

BSC Kragujevac

Trainer: Aleksandar Ostojic

Date:

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Schedule for today...

• 1 hour – introduction and presentation of the day• 1 sat – joint activities on worksheets• 20 min – coffee break• 40 min – joint activities on worksheets• 50 min – group work presentation• 10 min – final remarks of the day• 1 hour – individual counseling

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Day 3 – Organization of New Small Enterprise

• This chapter of the business plan can be characterized as its “technical” part.

• The task of every BP is to show the intended way of working in the new enterprise. Why?

• Because it is necessary for the whole BP to make sense, even to the person who does not have required expertise for assessing it at all.

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Fourth Title in Your BP – Organisation of New Small Enterprise• At the beginning of this chapter, information about

future (or existing) registration of the company should be given.

• Also, it needs to be explained how it is intended to plan, organize, manage and control the process of work (text or flow chart).

• Explain the policy towards quality management, existing or future certificates, etc...

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• After explaining the system, the following titles should be elaborated:

• Organisational structure• Technical and technological concept• Possibilities for further development

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• Besides these subtitles, it often happens that this chapter gives reasons why the chosen technology and organization should be implemented, and these reasons come from the market and from individual situation, so basically, a tool for this is SWOT analysis

• Strenghts and Weaknesses of the organization• Opportunities and Threats from the market

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4.1 Organizational Structure• At the beginning of his work, small enterprises

usually do not have the structure because they only have 2-3 employees.

• However, visually shown structure is the first instrument of audit and control (Why is control important?)

• Visually shown structure also tells a lot about responsibilities, relationship with supervisors, etc.

• Organizational structure is also a solid base to be upgraded with the written form of work place designs, when the moment comes.

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• Organizational structure is best shown in the form of diagram, with remarks relating to:• Specific tasks of the employees• Communication flows between parts of the

organizational structure• Documents to be used at the beginning of the

activities, etc.

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Example of simple organizational structure:

Entrepreneur

Production worker Driver Office assistant

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4.2 Technical and Technological Concept

• Within this chapter, it is necessary to describe the process of work itself i.e. process of production of products or services

• It can be done in text or graph

• After general description of the work process, the following subtitles should be elaborated:• Required land• Required facilities• Required equipment• Required infrastructure• Required human resources

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• Each of the given subtitles contains the table with relevant data, with textual explanation of each table

No Description Size Eur

1. Store 35 m2 45 000

2. Production facility 70 m2 25 000

3.

4.

5.

6.

Total: 70 000

Example of table showing “Required Facilities”:

Notice: Titles of the columns in the table change, depending on the contents – look at the worksheet!!!

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4.3 Possibilities for Further Development

• Explain how company will develop in the future in terms of:

• Activity• Organization• Market• HR

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• Now you can start working on your worksheets, and I am here to support and advise you!!! (1 hr of work – 20 min break – 40 min of work)

• ............................................................

• Daily work presentation – 50 min

• Thank you for the attention and see you tomorrow!!!

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MODULE 8: Business plan

BSC Kragujevac

Trainer: Aleksandar Ostojic

Date:

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Schedule of the Day...

• 1 hour – introduction and presentation of the day• 1 sat – joint activities on worksheets• 20 min – coffee break• 40 min – joint activities on worksheets• 50 min – group work presentation• 10 min – final remarks of the day• 1 hour – individual counseling

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Day 4 – Financial Analysis

• This chapter is the core of the business plan preparation

• Due to the circumstances on the loans market it can be viewed as the most important part of the BP (all stakeholders are interested to know how much money is needed and when it would pay off)

• When preparing this chapter, it is necessary to consult a financial advisor (or an accountant) in order to predict and avoid mistakes (WHICH WILL CERTAINLY HAPPEN).

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• Although this chapter is normally the hardest one to prepare and it assumes the knowledge of serious financial tools, it is possible to shorten it a little to show only the basic financial performances of the business

• The following will be defined and explained in this chapter:– Needed investments– Sources of funding and obligations towards them– Initial balance sheet– Identification of costs– Forming total revenue– Dynamic P/L Statement– Ration analysis

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Fifth Title in Your BP – Financial analysis

• No text under this title

• Everything that should have been said, had already been said in the previous chapters

• If there is anyhow a need to explain something, it can be done in the form of notices under the tables which show financial data

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5.1 Needed Investments

• Shown in the table, with partially pre-defined fields, whereby columns separate existing and new investments, respectively

• Those fields that have not been pre-defined, refer to the initial current assets and they can vary from case to case

• It is very important to consider all existing assets as an investment, such as e.g. car that I already have, but now I will need it for my new business

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No Description Existing New Total

1 Land

2 Premises

3 Equipment

4 Infrastructure

5 Licenses, franchises

6 Training

7 Foundation deposit

8 Other

Total fixed assets

9 Raw material (first order)

10 Other material

11 Cash

Total current assets

TOTAL

Example of the table showing investments

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5.2 Sources of Funding and Obligations

Towards Them • In the previous chapter, assets have been presented

according to their use• In this chapter, we are presenting them by source

Example of the table showing sources of fundingNo Source Existing New Total %

1 Equity

2 Bank

3 Development fund

n… …..

TOTAL

Notice: Totals must match the totals from previous chapter

• When there is a bank as one of the sources, in this chapter we attach a pay-off plan

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5.3 Initial Balance Sheet

• Balance Sheet is a document which gives the information about the assets of the company, by two criterias respectively:– By uses, and – By sources.

• A part in which the assets are shown by their use is called ASSETS SIDE, while the other part of the balance sheet which shows assets by sources is called LIABILITIES SIDE.

• Assets side always equals Liabilities side.

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• Initial balance sheet which should be presented in the BP differs from the real balance sheet (the one that companies give to tax authorities every year), it is much more simple and shows only roughly grouped assets.

Example of the simple initial balance sheet

No Assets Liabilities

1 Fixed assets Equity

2 Current assets Liabilities

Total Total

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5.4 Identification of Costs

• Costs are all those issues that company has to pay in order to work normally

• Costs should be shown in the table, year by year• Some of the basic groups of costs are:

• Supply of materials and/or goods for sale• Salaries• Interests• Payment fees• Public utility costs• Transportation costs• Rents• Depreciation, etc...

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No Type of cost Yr 1 Yr 2 Yr 3 Yr 4 Yr 5

1 Supplies

2 Transport

3 Advertising

4 Representation

5 Salaries

6 Depreciation

7 Rent

8 Payment fees

9 PU costs

10 Business services

Total

Example of the table showing costs

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5.5 Forming Total Revenue

• In line with the business documents required by law, there are a few kinds of revenues:• Basic activity revenues• Financing revenues• Other revenues

• In your BP, a term Total Revenue refers mostly to the revenue achieved from doing the basic activity of the company, which means:

No of units sold x price per unit = total revenue

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• Notice: Total revenue should always be shown for a period of time that was used when showing costs, in order to see the performance during the whole period of paying the loan back

No Product / Service

Price/Unit Time period

1 2 3 n

No Revenue No Revenue No Revenue n

1

2

n

Total:

Example of table showing the total revenue

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5.6 Dynamic P/L Statement

• P/L Statement is a document that shows the performance of the company in terms of revenues and expenditures.

• It is to be shown dynamically, year by year, just like revenues and costs

• The P/L Statement from your BP will differ from the one required by law, and of course, it is much more simple.

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No Description Yr 1 Yr 2 Yr 3 Yr 4 Yr 5

1. Total revenue

2. Total expenditures

3.(1 – 2)

Gross profit

4. Tax (10%)

5.(3 – 4)

Net profit

Example showing P/L Statement from your BP

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5.7 Ratio Analysis

• Ratio analysis puts certain data in proportion and in that way creates picture about the satisfactory performance of the investment

• Some of those ratios are:– Return on Equity = Net Profit/Equity– Thrift = Total Revenue/Total Expenditures– Return on Investment = Net Profit/Assets

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Important to know...• The following issues very often find their place

in business plans:

– Break even point – a method which shows at which level of sales total revenues equal total expenditures (0 profit).

– Cash flow – a number that shows the difference between inflows and outflows of cash

• Should be planned on a daily, weekly, monthly and annual level

• It is defined as:

Initial Cash + All Inflows – All Outflows

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• Now you can start working on your worksheets, and I am here to support and advise you!!! (1 hr of work – 20 min break – 40 min of work)

• ............................................................

• Daily work presentation – 50 min

• Thank you for the attention and see you tomorrow!!!

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MODULE 8: Business plan

BSC Kragujevac

Trainer: Aleksandar Ostojic

Date:

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Schedule for today...

• 15 min – Intoduction• 1 hour and 15 min – 3 presentations x 25 min (15

min each + 10 min discussion for each presentation)• 20 min – coffee break• 1 jour and 20 min – 2 presentations x 25 min + guest• 50 min – feedback and evaluation lists• 10 min – final remarks for the training• 1 hour – individual counseling

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Day 5 – Presentations and Evaluation

Why do people eat more eggs from hens then those from geese?

BECAUSE HENS ANNOUNCE TO EVERYBODY THAT THEY HAVE LAID THE EGG!!!

POINT:

PRESENTATION IS AS IMPORTANT AS THE BUSINESS PLAN ITSELF.

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• Now choose the representative of your working group to hold the presentation

• During presentations, write down unclarities, questions for discussion and remarks

• START PRESENTING!!!

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The Most Common Mistakes in BP Preparation...

• The entrepreneur is not well informed• Ignoring signals from the market• Falling in love with your idea• Too optimistic predictions about sales• Too strict implementation of the BP• Not having consultants during the BP preparation

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• Taking into account that every one of us knows more today than he used to know yesterday, I sincerely hope that I have taught you to understand what you don’t know and what you need to ask during your entrepreneurial life!!!

Thank you for your cooperation and attention!!!