Numerous statistics have shown that having a business plan can be very helpful for those planning to start or grow their business. Putting together a business plan can be illuminating to those who have very limited understanding of business management skills and how the process works in practice. Whilst there are numerous text books and templates available on how to put together a business plan, I have found that this is not always helpful for the novice who still need a hand holding. Getting support from an expert can be helpful but the financial investment can be a stumbling block. One way to overcome the investment challenge is to source experts with flexible approach in supporting clients with their business planning. For instance, how about utilising a seminar or a workshop where you can get all the support you need on the day from a qualified expert working in a group. Many small businesses have used this approach to circumvent the barrier of consultancy fees. Another option is to undertake a distance learning course with some online support from an expert incorporated within the process, which will ensure you complete your business plan as a core outcome of the course.
I guess some of you may never have thought about this. Remember there is always a solution to every perceived problem. In my company, we offer flexible support to all who are in need of putting together their business plan. We do group coaching, seminars, consultancy and distance learning course. You can even download free business plan template from our website or purchase one of the best books you can ever find in business planning titled ‘My Business Is My Business’ Learn How To Earn A Fortune – endorsed by the Co-Writer of Chicken Soup For The Soul and International Bestselling author Mark Victor Hansen.
Typically, business plans are needed for:
1. Business startup – when you are planning to start a business
2. Business development and growth- when you are planning to penetrate new and existing market with new products or existing products
3. Raising business finance- when you are planning to raise finance for a new or existing business
Here is a summary of how to prepare a financial plan linked directly to a business plan:
To calculate sales income /turnover forecast:
A. Make an assumption on the total number of goods and services the business expects to sell each month over the next 12 months. Remember to be realistic as new businesses very rarely start off with a high sales volume. In the case of a new business, you will need to set sales volume very low at the initial stage of the business to reflect the time spent advertising and promoting the services or products in an effort to generate leads and sales.
B. Make an assumption on the selling prices of goods and services. Again, ensure that the selling prices reflect what the market will be willing and able to pay. This is most likely going to be a reflection of market competition (the number of suppliers against the demand for the goods and services) as well as the purchasing power of the market (i.e. how much money consumers have to spend on goods and services).
C. Multiply the selling prices of goods and services, by the expected sales volume estimated to determine the monetary value of each month’s sales. Remember that where a business provides multiple types of goods and services, the value of sales must be determined for each of them.
D. In the case of voluntary sector organisations that rely on grants, donations and fundraising income, you will need to make an assumption on the type of grants expected and the value of grants in monetary terms based on your market knowledge. In the same vein, you will need to make an assumption on the number of fundraising events the business expects to undertake and the amount expected to be generated from each event. The assumption for donations can either be informed from historical trends or best estimates based on the strategy that will be used to generate them. Whatever approach is used, it is important that the assumptions are realistic to minimise the risk of overstating income. Remember that factors such as: government policy (taxation rate, regulation, public sector spending priority), the health of the economy (unemployment, interest rates, inflation rate etc), and the business’ relationship with its sponsors /wider community will ultimately influence many aspects of the income generated- so keep a watch on these factors.
To calculate expenditure forecast:
E. Make an assumption on the type of resources required to produce the sales income specified in “C” above. Resources in this case may include: staff (type), building (size, location etc), office furniture and equipment (computers, fax, telephone, heating, insurance etc) etc. It is for you to determine clearly what types of resources are required.
F. Make an assumption on the level of resources required as stated in “E” above to deliver the plan based on the assumptions on sales volume. For instance, you need to state what type of staff you need and how many, what type of computers or machines you need and how many etc.
G. Make an assumption for the prices of the resources (stated in “F” above) required to deliver the sales volume. Remember that the prices of the resources must be realistic and evidence based. An unrealistic price level will undermine the quality of the financial plan in that it will not be feasible (i.e. not achievable). Also remember that the prices of some resources tend to increase in line with the general inflation, whereas others increase at a rate below or above the general inflation index. You are therefore advised to desist from making generalised inflation assumptions (i.e. price assumptions).
H. Quantify the resources required to produce the goods and services by multiplying the prices of the resources by the volume of the resources as set out in “F” and “G” above. At this stage you have determined the value of the different types of expenditure you expect to incur to deliver the business plan. However, it is worth noting that the expenditure will differ in nature and so it is important that steps are taken to carefully categorise expenditure into “Revenue and Capital Expenditure” to ensure correct accounting treatment when producing the “Income and Expenditure Forecast (Profit and Loss Statement), “Balance Sheet Forecast” and “Cash Flow Forecast”. This will become clearer when we look at a worked example. For now, let us briefly define “Revenue and Capital Expenditure”. Capital Expenditures are expenditures that result in the acquisition of tangible items such as buildings, computers or furniture. At the initial purchase of capital items, almost the entire purchased price is shown in the balance sheet with only a proportion of the expense shown in the profit and loss statement to reflect the reduction in value of the items or the value of the capital item consumed during the financial year. Revenue Expenditures are expenditures that do not result in the acquisition of tangible items. They are usually consumed in the financial year they are purchased and will be shown in full as expenditure in the profit and loss statement or income and expenditure statement. If you need to know more about this, please read our booklet titled “Introduction to Financial Statement”. This booklet is packed with lots of practical examples and explanations specially written for non- finance experts.