Business Project Plan For A Startup Business 2

Business Plan for a Startup Business The business plan consists of a narrative and several financial worksheets. The narrative template is the body of the business plan. It contains questions divided into several sections. Work through the sections in order based on the given format, except for the Project Summary, which should be done last. Skip any questions that do not apply to your type of business. When you are finished writing your first draft, you’ll have a collection of small essays on the various topics of the business plan. Then you’ll want to edit them into a smooth-flowing narrative. The real value of creating a business plan is not in having the finished product in hand; rather, the value lies in the process of researching and thinking about your business in a systematic way. The act of planning helps you to think things through thoroughly, study and research if you are not sure of the facts, and look at your ideas critically. It takes time now, but avoids costly, perhaps disastrous, mistakes later. This business plan is a generic model suitable for all types of businesses. However, you should modify it to suit your particular circumstances. It also has tips for fine-tuning your plan to make an effective presentation to investors or bankers. If this is why you’re creating your plan, pay particular attention to your writing style. You will be judged by the quality and appearance of your work as well as by your ideas. It typically takes several weeks to complete a good plan. Most of that time is spent in research and re-thinking your ideas and assumptions. But then, that’s the value of the process. So make

time to do the job properly. Those who do, never regret the effort. And finally, be sure to keep detailed notes on your sources of information and on the assumptions underlying your financial data.

TABLE OF CONTENTS

I

Business Project Summary

II

Market Study

III Technical Feasibility………………………………………………… IV Financial Feasibility …………………………………... … V

Management / Organizational

Study………………………………… VI

Socio –Economic Study

…………………………………………... Appendices ………………………………………………… Bibliography Curriculum Vitae…………………………………………………….

Chap ter I - Business Project Summary The Business Project Summary presents the highlights , descriptive definition , long range objectives, feasibility criteria, history and basic conclusions of the project under study. It provides a capsule view of the whole project. In outline form, the business project summary is described as follows: A. Name of the enterprise Briefly explain the reason for such choice of name. B. Location Pinpoint the location of the company or factory/ office and give reasons for choosing them. The factors which affect the choice of location are the sources of raw materials, labor, and utilities: proximity to the market: ; nature of available transports ; and cost / rent of land or buildings. The project must choose a location where maximum efficiency can be attained at the lowest possible cost. C. Descriptive definition of the business project: 1. Related national program Is the project in line with any government- encouraged undertaking?

2. Project potential and proponents Give a conceptual description of the projects potential worth and importance and the people behind it. ( investors/ capitalist) 3. Project’s long range objectives What does the project expect to achieve in 5 to 10 years in terms of size, capacity, volume, role in its industry and the economy. 4. Highlights of the business project plan 1. History How did the project came about? 2. Project timetable and status How long will it take before the project goes into operation? What stage is the project presently in? 3.

Nature of Industry

Briefly describe the industry, its product lines, the demand-supply situations, history and growth patterns, problems and potentials and role in the economy. 4.

Mode of financing

Briefly discuss the sources of funds, the financing terms and the reasons for choosing such sources and terms . 5.

Investment costs How much funds are necessary to make the project

operational? How are these funds allocated?

F. Major assumptions and summary of findings and conclusion on the following: 1. Market Feasibility Discuss the nature of the unsatisfied demand which the project seeks to meet, its growth and the manner in which it is met. Her, the supply-demand situation is examined, the target markets analyzed, and the marketing programs. 2. Technical Feasibility Discuss the nature of the product line , the technology necessary for production, its availability, the proper mix of production resources, and the optimum production volume. 3. Financial Feasibility

Present the overall financial picture in terms of operating cash requirements , profitability and cash flow.

4. Socio-Economic Feasibility What are the effects of the business project on society and the economy as a whole. Is it generally beneficial to the people? I it in line with the economy’s development programs? 5. Management Feasibility What is the management structure ? Is it appropriate for the managerial needs of the project ? What is the salary scale? Is it compatible with industry standards? Chapter

II

Market Study

The Market Study is the lifeblood of virtually every business project study/plan. While profitability is generally the focal point of a business project, the question of demand is the most basic issue. Obviously, there can be no discussion of profitability or of the other aspects of the business project if there is no demand. It is ,therefore imperative that the market study be given first consideration. The market study seeks to determine the following: 1. The size , nature , and growth of total demand for the product.

2. The description and price of the product to be sold . 3. The supply situation and the nature of competition 4. The different factors affecting the market of the product. 5. The appropriate marketing program for the product. Product Description In describing the product to be marketed, the following are taken into consideration: 1. Name of the product 2. Properties of the product. 3. Uses of the product 4. Major users of the product 5. Geographical areas off dispersion – where the product is mostly found. Demand An analysis of demand is part of the important task of identifying the needs of consumers and determining whether they are willing and have the capability to pay for the products a business is contemplating on producing or selling. In forecasting demand, one takes into consideration not only production and importation figures of the past , but also such factors as credit availability, income distribution, population growth, price variations, age composition, the degree of urbanization, tastes, and preferences, money supply, GNP and others.

Thus , demand analysis involves analyzing both macroeconomic variables, economic data that add up the activities of consumers, firms, government, and the importexport sectors and microeconomic variables., data on the level of the individual firm or at least on the level of an industry grouping. An example of macro- analysis would be to study the GNP and its components. If GNP is expected to rise rapidly, businessmen could ordinarily expect good times for their business. Or if one is planning on selling a product for mass consumption, he might give more attention to the growth rate of a GNP component- Personal consumption expenditure. Or a producer of equipment would be interested in the Gross Domestic capital formation component. An exporter would be interested in the exports of goods and service items. On the micro level, the demand for the firm’s product is a function of many variables such as the price of the product, the price of substitute product, income, population ,etc. An analysis of income distribution , for example , could give us an idea on what types of products consumers can afford. Price elasticity , which measures the response of quantity demanded of a particular product to variations in its price, and income elasticity, which measure the response of quantity demanded of a particular product to variations in income , are also important concepts in demand analysis. For example, income elasticity figures can reflect priorities of consumers by showing which products and services they spend more on as their income improve.

The size and nature , growth of total demand of the product must be determined in the following manner: 1. Who and where is the market? Segment the market according to type, manner of use, income classification, location, age, etc. the manner of segmenting the market would depend on the type of product being considered. For instance, the market for automobiles could best be segmented by using income as the yardstick. On the other hand, the market for heavy equipments could better be understood by pinpointing industry classification. 2. What is the total domestic demand from the historic point of view? 3. Is there a foreign market? If so, determine the historical demand. 4. Evaluate the demand growth patterns in the past and the project future demand by applying appropriate projection methods.

Supply Analysis The supply situation maybe determined as follows: 1. Who and where are the direct competitors ? Classify them according to size, product quality, location, performance and market segment performance. It is important to determine the type of competition existing .Are there only a few big firms producing the

product considered? Are there small firms with no single firm controlling the market ? The type of competition in existence would influence the decisions on production capacity and marketing strategies. 2. Determine historical domestic supply as comprised by local production and importations. 3. If there is a foreign market, determine the historical supply patterns in the targeted countries as comprised by their local production and importations. 4. Evaluate supply growth patterns and project future supply by applying appropriate projection method.

Demand- Supply Analysis It is now essential to combine thee findings on the demand and supply situations. The analysis maybe conducted in the following manner: 1. Compare the demand and supply trends. 2. Determine the amount of demand unsatisfied, especially in the projections. If demand appears to be fairly satisfy by supply, it is important to consider either both of the following: a. Whether the factors affecting the market may disrupt the equilibrium so as to cause demand to grow faster than supply.

b. Whether the quality of the product is such that it may create additional demand or redirect part of existing demand in its favor. 3. Determine the share of the market by establishing the proposed production volume as against the total market size. Price Study In the economic theory, price is determined mainly by the demand –supply situation. An increase in demand with supply constant will hike prices. The reverse would result in the lowering of prices. There are , however , other factors which exert some influence on the price. Without any change in demand or supply , the prices may go up if raw materials costs rise, or prices may decline if the government decides to subsidize production. Prices may also be determined by the simple cost-plus method of accountants. Keeping all these in mind, the price study may be best be conducted as follows: 1. Determine the selling prices of all similar and substitute products. 2. Look into the history of these prices ( include range of fluctuations) and establish the factors that mostly influence their fluctuations over time.

3. Determine the responsiveness of demand to price changes. Will there be tremendous, slight, negligible increase or decrease if prices are lowered or raised? 4. Establish the product’s selling price, taking into consideration all of the above , the market segment targeted and the operating costs and expenses . Estimate also the increases foreseen in subsequent years.

Factors Affecting the Market There are certain factors affecting the market that may or may not be difficult to quantify or predict. This section takes into consideration and discusses the following: 1. Demand maybe significantly affected by population growth, income changes, tastes, rural/ urban development, prices of substitute products and complimentary products and such marketing tools as advertising , promotions, credit policies. 2. Supply maybe influenced by the developments of substitute products , the entry or exit of firms , sources and cost of production factors, government policies, improved technology, etc

3. Prices maybe affected by production costs , price controls and inflation, etc.

Marketing Programs The marketing program should be the end product of a market study. After defining market and price targets, the marketing program comes in as the implementing arm. It consists of the following procedures: 1. Determine the types of marketing programs prevalent in the industry and gauge their respective effectiveness. 2. Draw up a marketing plan that identifies and defines the target market, the selling price , the packaging of the product, the distribution network, the sales management mechanism and the advertising and promotions program. The important components of the marketing program maybe best be summarized by the four P’s product , price , place and promotion. Promotions would be concerned with making the end-users aware of, and desire, the product. 3. Design the marketing organization which will implement the plan and determine the costs involved.

The sales promotion plan and the channels of production should be appropriate to the product and the market. Consumer buying habits should be considered in the selection of outlets.

Chapter III - Technical Feasibility

The technical study is presented by describing and making the necessary calculations for the following: 1. Product (s) This portion describes the product(s) to be manufactured and sold. The description specifies the product’s physical, mechanical and chemical properties and identifies their various uses, both as finished goods and industrial inputs. 2. Manufacturing Process The selected manufacturing process must be described simply and clearly, preferably with aid of flowcharts and diagrams. The alternative process and the way they compare with the chosen process must be mentioned. The analysis should further touch on the manufacturing processes used in existing plants with the same or similar activit both domestic and foreign. Finally, a review of the licensing agreements if there is one. Should be included here. 3. Plant Size and production Schedule State the minimum rated capacity of the plant. The minimum capacity is that level of production where the resources are not fully used , but are employed at a minimum economical level. In general the minimum economical level is that level where the firm’s fixed cost are least covered by the resulting

revenue. The firm’s fixed cost are determined in the financial study. 4. Machinery and Equipment Machinery and equipment required must be identified and individually listed accordingly to type and use. Specifications, capacities and costs must be described in detail. Likewise the origin of the machinery, whether local or imported, as well as the manner of and cost of transportation then must be indicated. 5. Plant Location A thorough and comparative analysis for each potential location should be made to determine the most ideal plant site. It has to consider the following factors: a. The accessibility to, and availability of, raw material resources. b. The availability of cheap or moderately priced utilities such as power, water, fuel, internet connections and telephones. c. The combined cost of transporting raw materials and fuel to the plant size. d. The proximity to distributing outlets.

e. 6.

The availability of skilled and unskilled labor. Maps and Charts of proposed plant location must

be included. 6. Plant Lay out The plant lay out should be clearly depicted through diagrams and descriptions. A good plant layout is characterized by minimum material handling, effective space utilization, smooth workflow through the plant , safe and conducive working area for workers , safety and sanitation facilities, and flexibility of arrangements.

7. Building and Facilities The site , type and costs of the building and land as envisioned in the project , should be very accurately presented. The construction cost of building and facilities should be presented as adapted to the machinery and equipment that will be used in the project. Land improvements such as road, drainage facilities , et. And their respective costs should be computed and included. 8. Raw materials and supplies The required raw materials and supplies should listed and the basis for their selection must be presented. Descriptions and specifications on their physical , mechanical and chemical properties must

also be given. Current and prospective costs of raw materials , the availability and continuity of supply and the current prospective sources should also be included. 9. Utilities This portion describes the amount , cost and sources of electricity, fuel, water / steam required. 10. Waste Disposal A description of the quantity, manner of disposal and the cost involved in doing away with expected waste from production is necessary. The analysis must be expanded to consider the possibilities of further using these wastes. 11. Production Cost Here , the monetary aspect of all production plans is put into perspective. How much does it cost to produce one unit of output? To arrive at this, the following must be determined: raw materials costs, labor cost, overhead cost (fixed cost), operating costs (variable cost) and other pertinent costs 12. Labor Requirements

The various jobs and functions necessary for the operational stage must be described. For costing , labor is generally classified into three ways: direct, indirect and administrative . The number of workers to be employed for each classifications, the pay scales. Employee development programs, the organizational set-up and the aggregate labor cost must be described in detail.

Chapter IV

Financial Feasibility

Since all projects are considered viable only when they are expected to be profitable to meet short-term obligations , to be liquid and to remain liquid during adversities, to grow in their ability to fiancé their operations mostly from net worth sources rather than credit applications, and to be able to service their

financing charges , the financial aspect is a very important part of every project feasibility. As such , this portion should show in specified terms whether the project will be profitable even with existing competition and unfavorable economic conditions and present detailed figure to show improvement of the project’s financial condition. These maybe shown by the preparation of statements and schedules on the profits expected to be realized, the modes of financing needed to optimize the project’s performance, the manner and period of repaying creditors, and other financial considerations which are vital to the success of the venture.

A. Major Assumptions In the formulation of our financial projections, assumptions play a major role because they serve as the foundation for estimating the future expenditures, expenses and revenues of the project as accurately as possible. These assumptions therefore, must be based on well-considered, realistic and workable facts. In formulating assumptions, one must consider the following guidelines:

1. Existing business practices in the industry where the project belongs may provide some valuable information and insights on. a. Credit terms b. Credit extensions c. Bad Debts Allocations d. Bad Debts Write-off e. Quality Control Cost f. Dividend Policies g. Sales Returns, allowances and discounts h. Labor and management compensation i. Overhead accounts j. Inventory costing k. Operating accounts l. Fixed –Asset requirements m. Method of Depreciation and amortization n. Intangible-asset pre-requisites

2. Computations for : a. selling price

b. sales forecasts c. Unforeseen costs d. Production volume e. Product Mix 3. Govermental regulations and incentives directly or indirectly affecting the project, such as : a. Import policies b. Export policies c. Tax rates d. Tax exemptions e. Price ceilings B. Total Project Cost The estimation of the project’s total cost or initial asset requirements. Based on the materials, supplies, equipments, physical plant, and manpower needs of the project specified in the technical portion. The total project cost is composed of planned fixed-asset acquisitions and current –asset level. 1. Fixed Assets – in projecting the project’ s fixedasset requirements, the most approximate acquisition cost of the following accounts should be taken into consideration: a. Land and land improvements

b. Buildings, including electric and water utilities, furniture and fixtures c. Equipment, plus installation costs d. Purchase and installation of machinery e. Trial-run associated with electric utilities, equipment and machinery 2. Current assets Classified into: a. Inventory investments include purchases of materials and supplies and the corresponding freight expenses. b. Classified under inventory-related costs are such accounts as direct and indirect labor with corresponding fringe benefits, heat , light and power, maintenance and warehousing expense related to raw materials, materials in process and finished goods. c. Cash credits are itemized into pre-paid expenses and intangible assets, operating salaries, wages, and fringe benefits, engineering costs, operating taxes, office supplies, communication facilities, office facilities, billing costs, transportation costs, expenses for advertising, borrowing costs and provisions for unforeseen costs.

Intangible assets are itemized as follows: patents, licenses, goodwill, reproduction rights and organization and pre-operating expenses. Pre-operating expenses include costs of initial investigations, pre-feasibility studies, research and technical studies, economic studies etc. C. Sources of Financing In deciding on the financing scheme to support the project , one should take the following steps: 1. The alternative sources of financing to be considered listed. 2. The sources selected or proposed for both longterm and short-term financing are determined as a function of maximum profitability. 3. The amount and terms for each source selected should be finalized. 4. The status of releasing from each source should be properly documented and taken into account. 5. Further considerations involved in the financing of contingencies and fluctuations in working capital are specified so that the project’s liquidity and cash solvency are clarified within each operating year of the project’s early stages.

6. The alternative sources of financing are pinpointed in order of priority, incase variances from expected outcome result due to conditions which influence the project but are external to it in nature. D. Preparations of Financial Statements Financial statements present in an orderly and understandable form the cash budget , the operating performance and the financial condition of a business enterprise. These should cover at least three consecutive years. 1. Income Statement 2. Cash Flow Statement 3. Balance Sheet

E. Financial analysis This gauges the project’s profitability, liquidity, cash solvency and growth over time. 1. Test of liquidity – these measure to determine a firm’s ability to meet short-term obligations and to remain solvent in the event of adversities. a. Current Ratio b. Quick Acid –Test Ratio c. Liquidity of Inventories

2. Test of Profitability a. Return on Equity b. Return on Assets

3. Test of Operating Leverage a. Breakeven Volume b. Breakeven Selling Price

Chapter V –Management Study

After setting the objectives and the ways and means of attaining them, the overall implementation plan is discussed in the organization and management plan. Described in this study are the following : 1. Basic considerations in forming the organization 2. Forms of ownership 3. Organizational chart 4. officers and Key personnel 5. Project schedule

Form of Ownership Here the form of ownership under which the project will materialized is defined. The choices will be from the following Business entities in Bahrain: 1. Joint Stock Company (Closed) 2. Single Person Company 3. Holding Company 4. General Partnership Company 5. Simple Commandite Partnership

6. Public Joint Stock Company Organizational Chart All personnel – from the management staff to the rankand-file employees are situated in a diagram which shows their relationships and the flow of authority. Officers and Key Personnel The recommendation of specific individuals for certain key positions is made in this portion. The educational background, work experience and training , and net worth of each recommendee must be described. Project Schedule Enumerate the different activities involved in the preparatory stage of the project and present them in the Gantt Chart to exhibit the duration of each activity .

Chap ter VI - Socio-Economic Study

A project to be worthy of financing, especially from the government institutions , should be geared toward not only profit generation but also social and economic benefits. This portion of the study will serve as an aid in determining the socio-economic contributions the project can offer. It will therefore briefly explain how the project will affect: 1. Employment and income ,considering the improvement in the standards of living of families and individuals. 2. Supply o of commodities, observing the different possibilities of influencing prices, and foreign exchange balances. 3. Demand for materials , specifying the use of local materials to aid local producers. By generating employment and income, the project directly benefits individuals and families. Indirectly, the entire economy may be benefited. More income in the hands of the people would mean greater demand for other goods. This additional demand, may in turn, stimulate the production of more of the other goods, thereby generating further employment and income.

In an over crowded industry, the project may improve product quality and/or decrease prices if it is highly competitive in its entry. At the same time, the production activity exerts additional demand for raw materials and other industrial inputs. This stimulates the production of the latter items and helps promote industry linkages.

V

Management / Organization

Plan Who will manage the business on a day-to-day basis? What experience does that person bring to the business? What special or distinctive competencies? Is there a plan for continuation of the business if this person is lost or incapacitated? If you’ll have more than 10 employees, create an organizational chart showing the management hierarchy and who is responsible for key functions. Include position descriptions for key employees. If you are seeking loans or investors, include resumes of owners and key employees.

Form of Business Organization Is it Sole Proprietorship / Partnership or a Corporation? Why did you choose it? Profile of the owners/ Partners

Personnel •

Number of employees needed and projections.

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Type of labor (skilled, unskilled, and professional)

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Where and how will you find the right employees?

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Quality of existing staff

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Pay structure table. ( Include all employees salaries and Social Security contributions to be paid and projected yearly increase in pay scale.)

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Training methods and requirements

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Who does which tasks?

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Do you have schedules and written procedures prepared?

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Prepare the following:

.- Job Description- detail the duties and responsibilities of all employees/ staff.

- Job Specification – qualifications expected for the proposed employees / staff. - Prepare an Organizational Chart

V FINANCIAL PLAN Financial Assumptions. Financial Projections Five –Year Cash Flow Five- Year Projected Income Statement Five- Year Projected Balance Sheet

Financial Analysis Test of Liquidity a. Return-On-Assets b. Current Ratio Debt Analysis a. Debt Ratio b. Current Liabilities Ratio Profitability Analysis a. Return-On-Investment b. Asset Turnover c. Return-On-Equity d. Break-Even Analysis

Sources of Financing Where you got your capital – savings, loan etc. Break down of capital contribution among owners/partners.

Supporting Schedules

a.Sales projections b. Table of Supplies/Materials used c. Depreciation Table for machineries/equipment d. Salaries/ Wages Breakdown

Initial Capital Requirements Discuss the initial capital requirements

Total Project Cost Breakdown

VI Socio-Economic Plan Discuss the following : a. Contributions to the government/ community /society. 1. Taxes 2. Employment 3. Product / Service Availability 4. Support Government programs 5. Protection of the environment

I.

Appendices

Include details and studies used in your business plan; for example: •

Brochures and advertising materials

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Industry studies

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Blueprints and plans

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Maps and photos of location

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Magazine or other articles

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Detailed lists of equipment owned or to be purchased

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Copies of leases and contracts

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Letters of support from future customers

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Any other materials needed to support the assumptions in this plan

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Market research studies

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List of assets available as collateral for a loan

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Curriculum Vitae