Plan to Succeed

a business planning guide

Small Business Victoria

The business plan

INTRODUCTION 4

THE BUSINESS PLAN 1. Primary objectives 2. Business plan summary 3. Business description 4. SWOT analysis: Strengths, Weaknesses, Opportunities and Threats 5. Market analysis 6. Marketing strategies 7. Sales and production targets linked to working capital 8. Business growth and development 9. Production facilities 10. Business structure 11. Financial requirements 12. Costings of products, hourly rates and overheads 13. Break-even analysis 14. Return on investment 15. Management and ownership 16. Quality certification 17. Administration 18. Supporting documentation ATTACHmENTS 1. Canterbury Renovations projected profit or loss first year 2. Canterbury Renovations projected cash flow first year 3. Canterbury Renovations projected profit or loss second year 4. Canterbury Renovations projected cash flow second year 5. Statement of financial position 18 19 20 21 22 5 5 6 6-7 7 8 8 9 9 10 10-13 13-14 14 14 15-16 16 17 17

Small Business Victoria

Introduction
What is a business plan?
A comprehensive guide to the process of preparing a business plan. A business plan is essential when applying for bank loans or a lease on business premises. The following information will assist you through the process of researching and preparing a business plan. Always seek sound professional advice (legal, accounting and commercial) before making important business decisions.
Business people who do their own planning not only save a lot of money, they learn a lot about how to build a successful business. They also have a greater sense of ownership of their business plan and are more likely to utilise it as an ongoing part of good business management. However, preparing a business plan for the first time is not as easy as it seems. Although there are many information products available and consultants offering assistance with business planning, this booklet is designed specifically to assist new and existing small business operators plan their businesses with minimal external assistance. This booklet sets out the key features of a business plan and provides prompts and examples of how a business plan is written. The sample case study used in this booklet is a new business in kitchen, bathroom and laundry renovations to be run by a husband and wife team. The business will require: existing knowledge of building technology and the building industry determination to build a small business and learn about business management, and adequate capital. The basic operations will be obtaining contracts by competitive tendering, the purchase of raw materials and equipment, the manufacturing of fittings, their installation and finishing.

A business plan is simply the strategy to achieve the objectives of the proprietors of the business. A business plan prepared for a bank or investors will need to include evidence of the market potential supporting the projected sales of the business. Preferably a business plan takes the form of a written document. It plainly sets out all the important facts about the business, its history (if relevant), the current position, the objectives and the business activities to be undertaken.

Why do a business plan?

It is becoming increasingly tough to survive in business. It is not good enough to have a good product or service. Business people, whether they be panel beaters, manufacturers or doctors must also be good managers. Successful business managers have clear objectives, produce good products or services, understand the market, manage their money properly and are good employers. Accordingly, the primary reason to formulate a business plan is to address all the issues that make a successful business. In the case of a new business, a business plan will assist in determining the feasibility of the proposal. For an existing business, comparing actual outcomes against projections will assist in refining the business plan and improving performance. But there are other important reasons to formulate a business plan. For a start, no bank will lend money to a business unless it has a business plan that demonstrates how the business proposes to service the interest and repay the loan. The involvement of stakeholders such as staff, family and partners in the formulation of a business plan is also a good way of securing their commitment to the business.

Important note The sample business plan in this booklet about how to write a business plan is provided as a guide only. The statistical and financial information in this booklet are assumptions for the case study and should not be used for an actual business plan. Intending and existing business people must undertake their own research and use reliable data for the preparation of their business plans.

Plan to Succeed

The business plan

Following are the usual section headings for a business plan
The text of a sample business plan for Canterbury Renovations is bordered like this.
Not every section has to be addressed in the same degree of detail. For example, a person buying a well established business might have to pay much more attention to the valuation of the business than to the market analysis. Conversely, a new starter wanting to break into a competitive business such as road transport, building construction or the legal profession should pay particular attention to market research and marketing strategies.

2. Business plan summary

The concept The proprietors Frank and Julie Walter have a building background combined with considerable flair in interior design. Their proposal is to establish a new business providing kitchen, bathroom and laundry renovations for home owners. The product / service The business will supply and install domestic kitchen, bathroom and laundry equipment and fittings and carry out all associated building services. A free design and quotation service will also be provided. The products and services will be of high quality and include a wide range of built-in equipment such as ovens, microwaves, cooktops and dishwashers. market analysis Market research carried out by the proprietors reveal increasing activity in home renovation by home owners who subcontract the more complex work to builders, especially in the inner suburbs. Many existing kitchen, bathroom and laundry renovators do not have a good reputation, so the proprietors believe their competitive advantage will be the provision of top quality products and services, access to speciality items and innovative designs. marketing strategy The proprietors believe the best marketing strategy is a combination of a good network of contacts, a reputation for quality and reliability and personal referrals. This will be complemented by brochures, direct contact with home buyers in selected areas and a small display in a local rented shop. Financial data The initial funding will be $85,000. The proprietors will provide the initial $40,000, and will arrange an overdraft of $45,000 secured by a mortgage over their home. They expect to achieve a turnover of $300,000 in the first year yielding a gross profit of $50,000 after Franks salary has been paid. This will be sufficient to pay overhead expenses such as rent, interest and advertising.

1. Primary objectives
The proprietors have agreed to establish a building business, initially specialising in domestic kitchen, bathroom and laundry renovations and progressing in two to three years to residential construction. The emphasis will be on high quality products and service, the reinvestment of profits in business growth and the development of a business identity separate from the proprietors. Their aim will be to complete every job on time and within budget.

See Attachment 1.

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The business plan

3. Business description
Provide a brief description of the core activities of the business. In the case of an existing business, state its history, current position and future business activities. For a new business, outline the proposal, where the proprietors want the business to be in two to five years and how they will achieve their objectives.

4. SWOT analysis: Strengths, Weaknesses, Opportunities and Threats

A SWOT analysis highlights strengths and weaknesses within the business and identifies opportunities and threats in the external business environment. This will enable the proprietors to make the most of their competitive advantages, take steps to overcome their shortcomings, exploit opportunities in the marketplace and minimise their exposure to external threats. Provide a list of the strengths, weaknesses, opportunities and threats. Strengths Technical competence of the proprietors Dedicated staff Complete agreement by the proprietors on their objectives Financial resources A good network of contacts for potential clients, suppliers and tradespersons Ability to respond to the needs of the market Business located within the target market Weaknesses Lack of management skills Size of premises No track record in business No plan for management succession Inefficient equipment Lack of research and development facilities Limited security with which to raise finance for future growth and development The business is principally dependent on one person during the formative stages Opportunities Rapidly growing market because of a preference by home owners to renovate rather than shift Poor reputation of many existing renovation businesses and building tradespersons Large number of older but valuable homes within the target market are a Availability of casual staff and tradespersons Availability of display and manufacturing premises within the area High disposable income within the target market Expansion of the business into other areas and/or franchising

The business will be called Canterbury Renovations. The name has already been registered as a business name and an application has been lodged for a trademark. The core activity will be the renovation of kitchens, bathrooms and laundries. The business will provide a complete service ranging from design, quotation and installation to after sales maintenance and a seven year guarantee over the workmanship. Although the proprietors intend to concentrate on their core business, they will also accept shop fitting and general renovations if opportunities arise. The proprietors will establish a small showroom in the inner eastern suburbs. There are a number of premises available at a modest rental. These premises will also be used for the storage of materials and equipment. One such shop is available for rent and outgoings of $14,000 per annum. Some manufacturing work will take place at the proprietors residence. This has been approved by the council as a home occupation. The proprietors objective is to achieve an operating turnover of $300,000 by the end of the first year. In the second year, the proprietors expect the annual turn over to be $450,000, with the employment of two more staff. This growth will result from the marketing strategy and reputation for the provision of excellent products and services. The manufacturing works may have to be relocated to an industrial site and additional finance will be required in due course.

Plan to Succeed

The business plan

Threats Poor reputation of the industry regarding quality and reliability Economic downturns Existing and future competitors within the industry Increasing cost of materials, equipment and subcontract tradespersons Difficulties of getting good staff and reliable subcontractors Possible government regulation Geographically diverse market

5. Market analysis
It is essential to show that there is a sound customer base for the business. Provide a description of the market in terms of the following: Who are the customers? What is their geographical location? How many customers are there in this location? What is their purchasing power? How are they accessed? What is the stability of the market and expected growth (or decline)? What are the seasonal trends? What influences the customers? What is the price sensitivity? What is the competitive edge?

market analysis The proprietors have completed considerable research of the market over recent years. Statistical information has been obtained from the Australian Bureau of Statistics and local council records. In addition, extensive personal networking by the proprietors has provided the information to build a profile of the market for the business. According to the Australian Bureau of Statistics, building renovation is the most stable sector of the domestic construction industry. Many home owners who want to improve their living environment choose to renovate rather than move. Relocation costs such as legal and estate agents fees, mortgage costs, lodging fees, and stamp duty are significant deterrents to moving. Saving these costs makes a sizeable contribution to the cost of renovating an existing home. A survey of councils in the inner eastern municipalities of Stonnington, Boroondara and Whitehorse revealed that in the 1995/96 financial year approximately 2,500 permits were issued for home renovations. Approximately half were issued to home owners. About a third of owners/renovators were people who had recently purchased a home with a preference for locality rather than condition. Most owners/renovators in the areas surveyed were in the middle to high income bracket with at least two sources of income for each household. There was usually higher than average disposable income, which was spent improving their quality of life. There was a definite preference for home renovation because of immediate and enduring financial benefits. The proprietors have surveyed the existing competitors and identified their weaknesses as follows: Large overheads which mean higher prices Most are not located close to the target market Usually subcontract their manufacturing to external contractors Few have strong personal contacts within the target market

Small Business Victoria

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6. Marketing strategies
A good marketing strategy is vital to the success of a business. Customers must know about the product/s and service/s of the business and be encouraged to buy them. Describe the strategies that will be used to achieve sales. The following points should be considered: The competitive edge The competitive edge will be superior service, customers dealing with the proprietors (not employed sales staff), free design and quotation, quality of the product, after-sales service, seven years guarantee, the location of the business, and the range of materials, finishes and equipment available. The proprietors will ensure these benefits are emphasised through promotional literature and word-of-mouth referrals.

First-class customer service Canterbury Renovations will provide a first-class customer service in terms of: Responding to enquiries Hours of service to meet customer needs, within the limited geographical location Providing clear and comprehensive job specifications and fixed prices Starting and finishing the jobs on time and to budget Minimal disruption to the household during installation Guarantee of quality product Site clean-up on job completion After-sales service Promotional literature Promotional literature will be produced and distributed as follows: The literature will illustrate styles, ideal dimensions, and provide classic names It will include information about the proprietors to create a personal feel about the business It will be distributed in the area to all home buyers, applicants for permits for renovations and respondents to local advertising The advertising and promotional budget in the first year will be $12,000. means of advertising Selective and specialised market promotion and local print media and direct marketing to home buyers/renovators Word of mouth, which has proved to be one of the best forms of promotion and, as a result of the close knit community the proprietors work in, they believe this will be the most effective form of advertising Pricing policy The proprietors believe that because of the high disposable income in the location they intend to target, clients will not be particularly price sensitive, rating quality of product and service more important. Accordingly, the business will base its competitive advantage on quality rather than cheap prices. Location and visibility of the business The business will be located in the geographical centre of the market, with its display unit and manufacturing facilities no further than 10 kilometres from the farthest boundary of the market. Only one similar business is located close to the market. Otherwise all competitors are located in outer suburban areas which is inconvenient to clients.

7. Sales and production targets linked to working capital

Most businesses are underpinned by cash. Usually, materials, stock, labour, and subcontract work will have to be paid for before the customers pay for the work, equipment and services they receive. Therefore the more sales that are achieved the more money will be required to finance the production. The money required to pay the bills as they fall due is called working capital. Working capital requirements are derived from the projected cash flow. The cash flow is based on a monthly schedule of money in less money out. However, another way of calculating working capital requirements is illustrated as follows:

Canterbury Renovations will, during the first year, achieve the following levels of sales and production in average figures: 25 renovation jobs for $12,000 each. Total sales $300,000. Each job will last four weeks (one week production and three weeks installation) i.e. 25 x 4 = 100 weeks production and installation time 48 effective working weeks per year = approximately two jobs concurrent. Due to the fluctuating nature of the industry it is possible that there could be between zero and four jobs concurrent. If four jobs are concurrent the financial requirements would be the total contract prices less deposits received. four jobs x $12,000 = $48,000 deposits of 15% ($7,200 ) = $40,800. Therefore the maximum working capital required will be about $41,000 which is predicted to occur in April according to the cash flow.

See Attachment 2.

Plan to Succeed

The business plan

8. Business growth and development
Business growth and development means increasing sales, optimising the use of the business infrastructure, increasing buying power, improving efficiencies through internal specialisation and continually improving the product and service. Businesses that do not have a strategy for growth and development will soon be overtaken by competitors. Describe how the business will be developed.

9. Production facilities
Provide an outline of how the products and services will be produced: The skills, qualifications and experience of the proprietors The equipment required Sources of raw materials Subcontracting Technical requirements Personnel

The proprietors will keep abreast of new products, technology and production methods. They will continue to liaise with local and overseas suppliers. Marketing techniques will be monitored. Those that are successful will be expanded and the others will be abandoned. The proprietors are especially conscious of the need to continually monitor the financial position of the business. Sales, profitability and especially cashflow will be compared against projections on a monthly basis. The costs of each job will also be compared with the estimates to ensure profitability is being achieved and the estimates are accurate. The business will not be profitable in the first year. But expected profits in subsequent years will be applied to business development by the expansion of production facilities, expenditure on promotional activities and reserving cash to pay for more materials, labour and subcontract work associated with a higher level of business activity. The proprietors will analyse all unsuccessful quotations. Prospective customers will be asked to provide comment on why they rejected the quotations, and information gained this way will be used in monitoring the effectiveness of the pricing and marketing strategy.

The proprietors will produce the units partly with their own resources and partly with sub-contractors. Initially, the installation will be carried out by Frank, with electrical and tiling work subcontracted to experienced tradespersons. As the workload increases more installation work will be subcontracted. Frank has the carpentry and plumbing skills to produce the basic units, but work such as laminating veneers will be outsourced to specialist suppliers. The proprietors have a large garage at their premises and woodworking equipment such as a router, a docking saw, planer, benches, jigs and a large range of hand tools. They also own a four wheel drive vehicle and a trailer. The proprietors have satisfied the council that the production activities will be a home-based occupation and no planning permit will be required, provided that noisy machinery will only be used between 9:00am and 5:00pm Mondays to Fridays. The proprietors have obtained design details and technical specifications for fittings such as stoves, hot plates, ovens, sinks, dishwashers, hoods, baths, basins and toilets. They have also established contact with suppliers of innovative kitchen and laundry products. The proprietors envisage that after the first year of business, the production facilities will be relocated to a small factory close to the market. The showroom will also be moved to these premises. The factory will be an extra expense to the business, but can be afforded with the higher level of business and profitability in the second year of business.

Small Business Victoria

The business plan

10. Business structure
Business proprietors may choose to operate their businesses under one of a number of structures with different options for identifying the business and its products and services. These include: Business structures Sole trader Partnership Limited partnership Proprietary company Identifying features Business names Company names Trademarks Designs Patents Provide a clear description of the proposed ownership structure and why it was chosen.

11. Financial requirements

Business establishment costs
It is vital to assess total funds required to set up a business and cover its operating costs until it becomes profitable. At first glance, it may appear that all that is required is stock, basic fixtures and perhaps the first months rent. However, there are many other costs and expenses in starting a business and the items on the following lists should be considered. Note: all items in the following tables should include GST as applicable.

PRE-BUSINESS COSTS Accommodation Accounting fees Business planning Consultants Entertainment Legal fees Market research Publications Samples Telephone, fax, letters, photocopying Translations Travel Valuation fees $2,600

The business will be established as a proprietary company. The company will be acquired as a shelf company for a cost of $1,000 plus $200 to change the company name to F & J Walter Nominees Pty Ltd. The name Canterbury Renovations has been registered as a business name in the names of the proprietors but will be transferred to the company after incorporation. The proprietors have also applied for a trademark to secure the name of their product and service.

A company structure was chosen over a partnership or sole trader because a company would provide the best possible protection of the proprietors personal assets in the event of a failure of the business. An allowance has been made for the higher compliance costs in the projected operational costs. It has also been recognised that the proprietors/operators will be deemed employees, which will involve statutory responsibilities, such as WorkCover, superannuation payments and long service leave.

ADD UP PRE-BUSINESS COSTS HERE:

$2,600

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INITIAL COSTS Lease Legal costs Stamp duty Rent in advance Bond $2,500 CAPITAL COSTS Business structure Registration Professional fees Office equipment Desks Chairs Safe Computers Fax, telephone system $1,200

$2,800

Electricity, gas and phone Connections Security deposits Opening stock Insurance premiums Property damage Public liability Vehicle Theft Personal disability Professional indemnity

$500

$4,000 $800

Vehicles Plant and machinery Purchase price/deposit Delivery Repairs Installation/commissioning Building costs Shop front Partitions Electrical wiring and fittings Floor coverings Toilets, plumbing and drainage Painting Signs

$4,000 $2,000

$600

Printing and artwork Wages Credit card establishment fee Initial promotion Promotional cost Loan establishment cost Stationery and office supplies Computer software Installation Training Statutory charges Licences Permits Registrations $1,600

Display materials Purchase price of business Franchise fee Training shop fittings Counters Racks, shelving Storage Decorations

$1,500

Security system Trademark/design/patents Registrations Patent attorney fees Reference materials Land ADD UP CAPITAL COSTS HERE:

$600

Subscriptions for publications Association membership fees ADD UP INITIAL COSTS HERE: $9,400

$12,700

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Note: all items in the following tables should include GST as applicable. POSSIBLE DIRECT/RENOvATION COSTS Subcontractors Materials Wages WorkCover Group tax/payroll tax Maintenance and repairs Waste disposal Commissions Royalties Freight ADD UP RENOvATION/DIRECT COSTS FOR THE FIRST yEAR HERE: $250,000 $12,000 $103,300 $84,300 $50,400

Projected profit/loss
Calculate the expected profit/loss for the next twelve month period on a quarterly basis for an existing business or on a monthly basis for a new business as follows: Revenue from all sources within the business (renovations, sale of trading stock, interest earned, etc.) Less renovating costs (subcontractors, materials, wages directly related to renovations, etc.) Equals gross profit/loss Less overhead expenses (exploratory costs, initial costs, rent, finance charges, marketing costs, vehicle costs, wages for management and administration, etc.) Equals net profit/loss Notes: 1. The business structure will be a proprietary company so the profit/ loss projections will include wages for working owners/proprietors. 2. Use actual receipts and expenditure of money to calculate profit/ loss. This is simpler than using earnings and commitments, but some expenses such as annual insurance premiums should be amortised (or spread equally) over the whole year. See Attachment 1.

POSSIBLE OvERHEAD ExPENSES FOR THE FIRST yEAR Rent Outgoings Interests Motor vehicle expenses Advertising and promotion Bank charges Hire purchase payments Lease payments Insurance premiums Accounting fees PAYG TAX Legal fees Staff amenities Electricity and gas Postage Entertainment Travel and accommodation Subscriptions ADD UP OvERHEAD ExPENSES FOR THE FIRST yEAR HERE: ADD PRE-BUSINESS AND INITIAL COSTS TOTAL OvERHEADS FOR THE FIRST yEAR

$14,400 $1,600 $2,250 $9,600 $12,000

Projected cashflow
Irrespective of the profitability of a business it is necessary to ensure that the business does not run out of cash. This can happen because, for example: when too much stock or materials are purchased; clients do not pay when they should; the owners/proprietors draw too much; funds have not been set aside to pay tax or too much has been borrowed to set up the business; and there is insufficient profit on hand to make the capital repayments. The projected cashflow highlights surpluses and shortfalls of cash and is a vital part of good financial management of a business. It is calculated as follows: Cash receipts from all business sources (revenue, loans, sale of equipment, etc.) Less cash payments (renovating costs and overhead expenses, set up costs, capital repayments, taxation, etc.) Equals surplus/shortfall of cash See Attachment 2.

$10,800

$50,650 $12,000 $62,650

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Initial funding of the business
The projected cashflow will show how much money is required to support the business during the establishment phase. What is the source of this money?

12. Costing of products, hourly rates and overheads

Show how the prices of the products and services will be established

The owners have $20,000 of their own to invest in the business and have been offered an interest free loan of $20,000 from Franks parents with no specific commitment for repayment. But the closing balances in the projected cash flow shows that some $41,000 of additional funds will be required over the first year of the business. The owners have had preliminary discussions with their bank manager and subject to the provision of a properly documented business plan and the provision of a mortgage over their home, they will be provided with an overdraft of $45,000. An overdraft was agreed as the most suitable arrangement for the first year as the financial requirements will vary substantially from month to month and there will be no profits with which to repay capital. After the first year trading levels will be more predictable and the finance arrangements will be reviewed.

The business will be involved in the following: Purchase and supply of equipment Purchase and conversion of raw or partially finished materials Provision of manufacturing and on-site labour Provision of subcontract work The following assumptions are made in preparing quotations: Direct costs Overhead expenses Business profit Total Annual business turnover in the second year $73,150 $8,350 $81,500 +$ 81,500 $450,000 $368,500

Therefore to cover profit overheads, the average mark-up on all direct costs, equipment, materials, labour and subcontractors costs will be 25%. Accordingly, quotations will be prepared on the following basis (see below) for a typical job of e.g. $10,000:

Note: all items should include GST as applicable. Item Equipment Material Labour Subcontractors Total Direct cost $ 2,500 1,500 2,300 1,700 $8,000 mark-up % 15 35 30 25 (ave) 25% mark-up $ 375 525 690 425 (approx.) $2,000

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Note: all items should include GST as applicable. Labour rates will be calculated as follows: Costs Hourly rate (according to award or workplace agreement) Add on costs, e.g. WorkCover 5% Medical costs, e.g. Superannuation Payroll tax Sick pay allowance, e.g. Annual leave allowance ($18x5248) -$18 Tools allowance Total Allowance for non-productive time, e.g. industrial action, maintenance, travelling, tool maintenance, training injuries, etc., e.g. 10% Total Therefore, the hourly rate for estimating work will be $28.00 plus 25 per cent mark up = $36.50 per hour. $ 18.00 0.90 1,700 $8,000 (N/A) 2.00 1.50 1.00 25.48 + 2.55 28.03

13. Break-even analysis

A break-even analysis is a calculation to show the level of sales or business required to pay for all the overheads of the business and at least come out even. The break-even point for Canterbury Renovations is calculated as follows:

14. Return on investment

The proprietors money tied up in a business is an investment. If it was not tied up in the business it would, presumably, be earning interest in some other form of investment. Will the business provide a return on the investment at least equal to fixed deposits in banks or blue chip shares?

The average mark-up on direct/renovation costs is 25%. e.g. a $10,000 job will have a direct cost of $8,000. Therefore the gross profit will be $2,000, i.e. 20% of the value of the job. The projected overheads for the business in the first year will be $62,650. To break even the business would have to achieve sales of which 80% pays for the direct/renovation costs and 20% pays for the overheads of $62,650. If sales x 20% = $62,650, then the sales to reach break-even would be $62,65020% or multiplied by 5, i.e. $313,250. Therefore, the break-even point of sales in the first year will be $313,250. This will not be achieved in the first year. However, in the second year the profit margin of 18% of the projected sales of $450, 000 (i.e. $81,500 gross profit) will cover the overheads of about $73,150 and produce a net profit of $8,350. The projected net loss in the first year means the proprietors will not receive any return on the money they invested in Canterbury Renovations. However, the expected profit in the second year will be $8,350 (after proprietors salaries which are part of costs and expenses). Therefore the return of $8,350 on the proprietors original investment of $40,000 is about 21%. Whilst better than the current rate of return on more secure investments the proprietors are conscious of the risks and insecurity of small business, particularly in the building industry and aim to increase the return on investment to 25% in future years. This is particularly important as the proprietors plan to retain profits to partly finance future growth of the business and so increase their investment in the business.

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15. Management and ownership
Describe the background of the key persons in the business and what other staff or contractors will be required. Also briefly state the roles of the key persons, the methods of remuneration, methods of recruitment (where applicable) and training programs.

management succession
Describe the arrangement that will be made for the business to continue in the event of disability of the proprietors.

The proprietors will be Frank and Julie Walter. Frank has a trade certificate in plumbing and is a registered builder. He has been employed as a project manager by a leading home builder for ten years and is thoroughly familiar with building technology. In the last two years, Frank also worked part time for the same firm as a sales consultant developing good customer relations skills. Julie studied home economics at RMIT and is now a teacher at a private school in the inner eastern suburbs. Both Frank and Julie are enthusiastic home renovators, with particular experience in classical and period style homes. Julie will maintain her job for the next six months but will work part time for the business mainly in administration and marketing. Julie has an extensive network of acquaintances through her employment and membership of a number of associations. Frank and Julie have one infant child, but regular childcare is provided by their extended families. It is not anticipated that the business will employ any staff other than the proprietors within the first year. During that year, most of the work will be subcontracted to reliable tradespeople whom Frank knows through his employment in the industry. Frank will however, personally undertake the plumbing and closely supervise the other work. It is expected that after the first year, the workflow will have increased and the employment of a carpenter/ joiner and a sales assistant/administrator for the showroom will be required. Employees will receive remuneration in accordance with the relevant award or the minimum employment conditions prescribed by the Workplace Relations Act 1996. In addition, they will be entitled to participate in an incentive scheme based on personal performance and business profitability.

The proprietors agree that within the first six months, it would be impractical for Julie to continue the business in the event of Franks disability. Franks insurance would cover the nonrecoverable investments in the business (stock, advertising, tools, etc.), repayment of the loan and subcontracting of current contracts (approximately $50,000). Julie also has a strong personal commitment to ensure that the business will become successful and has decided that when she resigns from her present position after the first year she would continue with the business in the event of Franks disability. His insurance would cover the re-financing of the business to subcontract the manufacturing, and hire suitable tradespeople for the installation. Having been closely involved with the design and technical aspects of renovating their own homes over a period of eight years, Julie feels confident that she can take over a management role.

Key person insurance

Ascertain the financial impact on the business, if one of the key people could not continue to provide their services because of disability.

Both Frank and Julie will be insured to cover the loss of their contribution to the business in the event of disability. In the first year, the business and the family will be substantially dependent on Frank and accordingly, his continuing good health will be insured for $250,000. Julies role, albeit a supportive one, is equally important and her continuing contribution will be insured for the same amount as Franks .

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Personnel management
The proprietors and staff are the most important resource of a small business and good arrangements between the business and its personnel is necessary to ensure the success of a business, especially in the long term. The following matters need to be considered: Arrangements between the proprietors The proprietors have reached agreement on their principal objectives and their respective roles which are set out elsewhere in this Business Plan. They agree to be bound by this agreement for the first year of the business. Any variation to this must be by mutual consent and be in writing. Involvement of family members. The proprietors extended family have agreed to assist by providing childcare as and when required. If the business is retained long enough, the proprietors children will be encouraged to take an active role in the business. Assessment of staff and subcontractors performance. The performance of the staff, including the proprietors and subcontractors, in relation to key results such as quality of workmanship and customer service, effective use of time and accuracy will be reviewed every three months in the first year of the business. Contribution of staff to the development and implementation of business plans. The staff will be consulted regularly in relation to the business planning process, particularly in the areas of production, customer service and marketing. This will be both ongoing and in formal meetings every three months in the first year of the business. Training programme. Skills maintenance and development are essential in building a bigger and better business. The priority areas for staff training will be: - Building and production techniques - New products: fittings, materials, equipment, etc. - New machinery: outputs, operation, efficiency, etc. - Marketing skills - Market analysis - Selling - Customer service - Financial skills - Analysing financial statements - Estimating and pricing - Preparing cashflow projections - Comparing actual expenditure - Bookkeeping The proprietors plan to develop their basic business skills initially by both attending the eight-week course Planning and Starting a Small Business at the Box Hill College of TAFE. The proprietors will join the Master Builders Association and attend relevant industry courses. The proprietors will also attend trade shows and subscribe to business and trade magazines. As the business and staff develop deficiencies in certain areas, these will be identified and addressed through a formal training strategy.

16. Quality certification

Will quality assurance certification be undertaken? If so, for what purpose, how will it be undertaken and at what cost in time and money?

Canterbury Renovations, as a new business, will be developed in accordance with a comprehensive business plan. As there is no anticipated requirement by clients in the immediate future, quality assurance certification will not be undertaken at this stage. However, this aspect will be kept under review as the business develops.

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17. Administration
management information systems
The business will maintain proper and sufficient business records to show the financial position of the business on a monthly basis. Financial records will show overall profitability and cash flow and compared with projected profit/loss and cash flow statements of this Business Plan. Records will also be kept for each job to show its progress and cost in labour, materials, and subcontractors and compared with the estimate for that job.

18. Supporting Documentation

You should provide copies of applicable documents which support the business plan: References, qualifications Licences and permits Business or company incorporation certificate Partnership agreement Research data, promotional literature Product drawings, designs or photos, locality map Projected profit/loss - first year (see example - Attachment 1)

The following specific records will be kept: Cash book Receipt book Invoices, received and sent Bank deposits and statements Petty cash expenditure Wage, WorkCover, superannuation, long service leave records, and employee details Capital assets register Materials purchased and allocated to each job or temporarily as floating stock Contact details of all enquirers, existing clients, suppliers and subcontractors Individual job records showing progress Job estimates

Projected cashflow - first year (see example - Attachment 2) Projected profit/loss - second year (see example - Attachment 3) Projected cashflow - second year (see example - Attachment 4) Statement of financial position (see example - Attachment 5)

Small Business Victoria

17

18
Sep Oct Nov Dec Jan Feb mar Apr may Jun Total 20,000 20,000 7,000 5,600 4,200 1,000 17,800 2,200 4,050 5,900 (2,240) (760) 5,900 9,600 13,300 6,640 20,950 24,100 10,240 12,760 24,100 30,400 36,700 25,360 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 4,200 4,200 4,200 4,200 4,200 4,200 4,200 4,200 4,200 1,000 27,740 10,260 7,000 8,400 2,240 3,360 8,400 11,200 14,000 8,960 10940 8,750 10,500 2,800 4,200 10,500 14,000 17,500 11,200 11,600 103,300 84,300 50,400 12,000 250,000 50,000 25,000 30,000 8,000 12,000 30,000 40,000 50,000 32,000 38,000 300,000 25,000 30,000 8,000 12,000 30,000 40,000 50,000 32,000 38,000 300,000

Canterbury Renovations

Plan to Succeed

PROJECTED PROFIT OR LOSS FIRST yEAR (excluding GST)

Jul

Aug

Revenue

Renovating revenue

15,000

Other revenue

Attachment 1

Total revenue

15,000

Less renovating costs

Subcontractors

5,250

Materials

4,200

Renovation wages

4,200

4,200

Misc renovating costs

1,000

1,000

Total renovating costs

5,200

14,650

Gross profit

(5,200)

350

Less overhead expenses 1,200 400 150 800 1,000 900 900 900 900 900 900 500 500 500 500 2,000 800 800 800 800 800 200 230 170 130 240 320 800 500 900 400 1,200 1,200 1,200 1,200 1,200 1,200 1,200 800 340 800 500 900 240 800 500 900 160 800 500 900 1,200 1,200 14,400 1,600 2,250 9,600 12,000 10,800 2,600 9,400 4,450 (2,250) 450 2,270 (5,810) 3,600 3,630 3,570 3,530 (4,290) 5,540 360 3,720 5,880 4,540 8,760 3,640 3,000 3,560 6700 62,650 (12,650)

Rent

1,200

1,200

Outgoings

Bank Interest

70

Motor vehicle expenses

800

800

Advertising & promotion

3,000

2,000

Other overhead expenses

900

900

Exploratory costs

2,600

(advert./prom.exclud) Initial costs

9,400

Total overhead expenses

17,900

4,970

Net profit

(23,100)

(4,620)

Canterbury Renovations
Sep Oct Nov Dec Jan Feb mar Apr may Jun Total

PROJECTED CASH FLOW FIRST yEAR (make appropriate allowance for GST)

Jul

Aug

Cash receipts 15,000 0 15,000 7,000 5,600 4,200 1,000 1,200 400 150 500 1,000 900 900 900 900 900 900 900 500 500 500 500 2,000 500 500 900 500 400 300 200 300 400 500 200 230 170 130 240 320 340 400 800 240 200 500 900 160 700 500 900 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 4,200 4,200 4,200 4,200 4,200 4,200 4,200 4,200 4,200 1,000 1,200 7,000 8,400 2,240 3,360 8,400 11,200 14,000 8,400 11,500 8,750 10,500 2,800 4,200 10,500 14,000 17,500 10,500 12,300 103,300 84,300 50,400 12,000 14,400 1,600 2,250 4,700 12,00 10,800 2,600 9,400 12,700 21,950 (14,520) 15,000 21,950 (21,470) (25,720) 24,250 27,330 13,310 20,000 25,000 30,000 (21,470) (25,720) (28,050) (11,360) 8,000 15,690 24,250 27,330 13,310 15,690 29,140 (19,050) 12,000 29,140 33,720 (36,190) 30,000 33,720 40,940 (39,910) 40,000 40,940 27,140 (40,850) 50,000 27,140 (17,990) 32,460 (17,990) 30,000 32,460 320,450 40,000 260,000 320,450 (20,450) 20,000 25,000 30,000 8,000 12,000 30,000 40,000 50,000 30,000 260,000 20,000 25,000 30,000 8,000 12,000 30,000 40,000 50,000 30,000 260,000

Renovating revenue

Other receipts

Total cash received

Cash payments

Subcontractors

5,250

The business plan

Materials

4,200

Renovation wages

4,200

4,200

Misc renovating costs

1,000

1,000

Rent

1,200

1,200

Outgoings

Bank interest

70

Motor vehicle expenses

400

300

Advertising & promotion

3,000

2,000

Other overhead expenses

900

900

Exploratory costs

2,600

(advert/prom. excluded) Initial costs

9,400

Capital costs

12,700

Total payments

35,400

19,120

Bank balance

Opening balance

40,000

4,600

Plus receipts

Less payments

35,400

19,120

Small Business Victoria

Closing balance

4,600

(14,520)

(11.360) (19,050) (36,190) (39,910)

19

20
Sep Oct Nov Dec Jan Feb mar Apr may Jun Total 40,000 40,000 14,000 11,200 5,500 1,500 32,200 7,800 1,200 400 160 1,000 800 1,900 5,460 2,340 6,390 11,020 9,100 (7,210) 5,110 6,030 5,100 5,760 7,500 (5,250) 1,900 1,900 1,900 2,610 2,900 800 1,690 800 800 2,000 1,000 1,000 1,000 1,000 1,000 1,000 800 2,900 5,930 1,870 210 240 200 150 0 30 400 800 70 1,000 800 2,900 7,970 (170) 50 1,000 800 2,900 7,150 (1,200) 30 1,000 800 2,900 7,130 (3,030) 1,200 1,200 1,200 1,200 1,200 1,200 2,400 11,500 17,500 14,200 (1,450) 2,250 7,800 7,800 5,950 2,400 38,500 47,950 45,800 16,450 22,750 32,200 32,200 25,050 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 25,900 4,100 2,400 5,500 5,500 6,500 5,500 5,500 5,500 5,500 5,500 5,500 14,000 18,200 16,800 4,200 7,000 11,200 11,200 9,800 8,400 17,500 22,750 21,000 5,250 8,750 14,000 14,000 12,250 10,500 157,500 126,000 67,000 18,000 368,500 81,500 18,000 1,600 1,350 12,000 11,690 28,510 73,150 8,350 50,000 65,000 60,000 15,000 25,000 40,000 40,000 35,000 30,000 450,000 50,000 65,000 60,000 15,000 25,000 40,000 40,000 35,000 30,000 450,000

Canterbury Renovations

Plan to Succeed

PROJECTED PROFIT OR LOSS SECOND yEAR (excluding GST)

Jul

Aug

Revenue

Renovating revenue

20,000

30,000

Other revenue

Attachment 3

Total revenue

20,000

30,000

Less renovating costs

Subcontractors

7,000

10,500

Materials

5,600

8,400

Renovation wages

5,500

5,500

Misc renovating costs

1,500

1,500

Total renovating costs

19,600

25,900

Gross profit

400

4,100

Less overhead expenses

Rent

1,200

1,200

Outgoings

Bank Interest

110

100

Motor vehicle expenses

1,000

1,000

Advertising & promotion

800

800

Other overhead expenses

1,900

1,900

Total overhead expenses

5,010

5,000

Net profit

(4,610)

(900)

Canterbury Renovations
Sep Oct Nov Dec Jan Feb mar Apr may Jun Total

PROJECTED CASH FLOW SECOND yEAR (make appropriate allowance for GST)

Jul

Aug

Cash receipts 30,000 30,000 14,000 11,200 5,500 1,500 1,200 400 160 1,000 800 1,900 37,660 (15,960) 30,000 37,660 (27,230) (31,210) (17,110) 20,680 43,610 53,980 50,900 22,210 30,250 5,430 40,000 50,000 65,000 60,000 15,000 (23,620) (27,230) (31,210) (17,110) 20,680 5,430 25,000 38,130 (7,700) 43,610 53,980 50,900 22,210 30,250 38,130 1,900 1,900 1,900 2,610 2,900 2,900 2,900 40,170 (7,700) 40,000 40,170 (7,870) 800 1,690 800 800 2,000 800 800 1,000 1,000 1,000 1,000 1,000 1,000 1,000 210 240 200 150 0 30 70 50 1,000 800 2,900 36,200 (7,870) 40,000 36,200 (4,070) 0 0 0 0 400 0 800 0 1,200 1,200 1,200 1,200 1,200 1,200 2,400 2,400 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 2,400 0 30 1,000 800 2,900 33,030 (4,070) 35,000 33,030 (2,100) 5,500 5,500 6,500 5,500 5,500 5,500 5,500 5,500 5,500 14,000 18,200 16,800 4,200 7,000 11,200 11,200 9,800 8,400 17,500 22,750 21,000 5,250 8,750 14,000 14,000 12,250 10,500 157,500 126,000 67,000 18,000 18,000 1,600 1,350 12,000 11,690 28,510 441,650 (20,450) 460,000 441,650 (2,100) 40,000 50,000 65,000 60,000 15,000 25,000 40,000 40,000 35,000 460,000 40,000 50,000 65,000 60,000 15,000 25,000 40,000 40,000 35,000 460,000

Renovating revenue

40,000

20,000

Total cash received

40,000

20,000

Cash payments

Subcontractors

7,000

10,500

Materials

5,600

8,400

The business plan

Renovation wages

5,500

5,500

Misc. renovating costs

1,500

1,500

Rent

1,200

1,200

Outgoings

Bank Interest

110

100

Motor vehicle expenses

1,000

1,000

Advertising & promotion

800

800

Other overhead expenses

1,900

1,900

Total payments

24,610

30,900

Bank balance

Opening balance

(20,450)

(5,060)

Plus receipts

40,000

20,000

Less payments

24,610

30,900

Closing balance

(5,060) (15,960)

Small Business Victoria

21

Attachment 5
30/06/96 Assets Cash Debtors Capital costs Total assets Less liabilities Loan Bank O/D Total liabilities Net assets Proprietors equity Shares Retained earnings Total proprietors equity 20,000 20,000 20,000 (12,650) 7,350 20,000 (4,300) 15,700 20,000 20,000 20,000 20,000 20,450 40,450 7,350 20,000 2,100 22,100 15,700 40,000 $ 40,000 40,000 7,800 47,800 30,000 7,800 37,800 30/06/97 $ 30/06/98 $

Statement of financial position

The statement of financial position or balance sheet brings together the results from the profit or loss statement and the cashflow statement to identify the proprietors net worth and how that net worth is made up. The first column shows that when the business started Frank and Julie paid cash for $20,000 of shares in the business, and then borrowed $20,000 from Franks parents which gave the business an initial $40,000 cash in the bank at the end of June 1996. For simplicity, we have assumed these activities were undertaken before establishment and commercial costs were incurred. Column two shows that in the first year of operation all this initial cash is used plus an overdraft is required to run the business. The loss of $12,650 means that proprietors equity of $20,000 has been reduced to $7,350. Developing a business plan in this manner highlights the initial risks associated with starting a new business and the importance of proprietors having sufficient equity in the business. If the business were to close at the end of the first year Frank and Julie would only have $7,350 left from their $20,000 and they would still owe Franks parents their $20,000. Column three shows the $8,350 profit in the second year improves Frank and Julies position with their equity building back up to $15,700, while the bank overdraft has been reduced from $20,450 to $2,100. In the third year of operations the proprietors equity should be more than their original $20,000, and there should be cash in the bank.

Who can help?

For further assistance and information contact Victorian Business Line 13 22 15 business.vic.gov.au Your local Victorian Business Centre

22

Plan to Succeed

Victorian Business Centre Network

Your top three sources of up-to-date information and support are:
the Victorian Business Line on 13 22 15 the Business Victoria website (business.vic.gov.au) Victorian Business Centres across metropolitan and regional Victoria

Ballarat ( 5320 5900 48 Sturt Street Ballarat VIC 3350 Geelong ( 5229 0641 69-71 Moorabool Street Geelong VIC 3220 Mildura ( 5051 2000 131 Langtree Avenue Mildura VIC 3500 Vermont ( 9874 5733 520 Canterbury Road Vermont VIC 3133

Bendigo ( 5442 4100 46 Edward Street Bendigo VIC 3550 Glenroy ( 9304 4344 Suite A, 3 Belair Avenue Glenroy VIC 3046 Shepparton ( 5821 1811 3/164 Welsford Street Shepparton VIC 3630 Wangaratta ( 5721 6988 27-29 Faithfull Street Wangaratta VIC 3677

Dandenong ( 9791 8572 314 Thomas Street Dandenong VIC 3175 Melbourne CBD ( 13 22 15 113 Exhibition Street Melbourne VIC 3000 Traralgon ( 5174 9233 33 Breed Street Traralgon VIC 3844 Wodonga ( 6056 2166 6/22 Stanley Street Wodonga VIC 3690

Disclaimer: The information contained in this publication is provided for general guidance only. The State of Victoria does not make any representations or warranties (expressed or implied) as to the accuracy, currency or authenticity of the information. The State of Victoria, its employees and agents do not accept any liability to any person for the information or advice which is provided herein. Authorised by the Victorian Government, 113 Exhibition Street Melbourne 3000. Department of Innovation, Industry and Regional Development 2007 Printed by MDG Marketing Design Group, 629 Canterbury Road, Surrey Hills, Victoria 3127. 15553MDG_07/07