BetterBUSINESS

Planner
A Management Tool To Help You Achieve Your Goals
1997 MAUS Business Systems. All rights reserved.
BetterBUSINESS Planner Planning Guide and Workbook, v0.05/35
This book is the intellectual property of MAUS Business Systems and is licensed exclusively
to Commonwealth Bank of Australia. The information may not be stored, copied, given, lent
or in any way transmitted to any other party in any form or by any means, electronic,
mechanical, recording, or otherwise, without the prior written permission of the
Commonwealth Bank of Australia.
The information in this book is subject to change without notice. The Commonwealth Bank of
Australia assumes no liability for any errors or inaccuracies that may appear in this book.
This book is based on Business Planning Software, The Timesaving Guide to Business &
Marketing Planning, author Peter Hickey and has been licensed from MAUS Business
Systems, 1997.
The address of MAUS Business Systems is 1/8 West Street, North Sydney NSW 2060,
Australia.
Printed in Australia, April 1997.
Planning Guide
and
Workbook
The BetterBusiness Planner should prove to be invaluable in guiding a small business to
perform the important management functions of strategic and financial planning.
The Australian Quality Council has included the BetterBusiness Planner as an enhancement to
the Business Planning segment of the Business Growth through Quality program for small
and medium enterprises.
Norbet Vogel
General Manager, Development
Australian Quality Council
Many small business people require assistance with business planning.
Here is the answer! The BetterBusiness Planner is a practical, step-by-step guide that will help
a business to plan for a long and successful future.
John Cuthbert
Chairperson, Ausbiz Small Business Development Program
BetterBUSINESS
Planner
Foreword
Dear Business Owner/Investor
You invest considerable time, effort and money in your business. We want to help
improve the value of that investment.
Offshore research has revealed that on average businesses that had a working
business plan achieved 63% higher revenue growth, 58% higher profit growth and had
a 21% higher awareness of the value of their company.
Our own research indicates that the lack of a business planning process is one of the
primary reasons attributed to business failure.
We recognise the vital importance of the philosophies of business planning and have
developed BetterBUSINESS Planner to help you achieve your business and financial
goals by encouraging the discipline of planning.
Through a series of questions, examples and guidelines, the BetterBUSINESS Planner
will lead you through the planning process step-by-step and enable you to produce a
comprehensive business plan.
I encourage you to use the BetterBUSINESS Planner to help keep your business
competitive and reach its maximum potential. Its another way the Commonwealth
Bank is going the extra step to help business.
Neville Cox, General Manager, Business Banking.
BetterBUSINESS
Planner
Preface
Purpose This book is part of the BetterBUSINESS Planner. It is a complimentary inclusion when
purchased as part of the software package, but it can also be purchased separately.
We expect this guide to be the stimulation that you need to start or to continue your
progress down the pathway of producing a Business Plan.
Intended audience The book is intended to be used by purchasers of the BetterBUSINESS Planner, e.g.
Business Owners, Investors, students, etc.
Book structure The book is structured into two parts:
1. Planning Guide
2. Workbook
Planning Guide The Planning Guide contains two sections
Before starting Provides several hints before you start the business
planning process and describes a number of different
types of businesses.
Starting the business
planning process
Describes how you should start thinking about the
planning process. It also summarises the points that
you will need to consider to produce a professional
looking Business Plan.
BetterBUSINESS
Planner
Preface, continued
The Planning Guide,
continued
How to get the
information for a
business plan
Describes the eight steps that will need to be
addressed during the planning process. The first five
steps include analysis of your Business, Sales, Market
and the Competition as well as a Strengths, Weakness,
Opportunity and Threats (SWOT) analysis. The last
three steps are Write the Plan, Implement the Plan and
Monitor the Plan.
Using market
segmentation to help
you prepare a business
plan
Provides a number of practical examples of how a
business should try to segment its market.
The segmentation
building model
Provides a table as an example of a business using the
criteria described in the previous section. This example
relates to the mobile phone market.
Developing a strategy Describes how to develop a strategy by giving an
example of a company breaking down its sales, looking
at its market and the competition and then developing
strategies to improve its position.
Conclusion Provides several suggestions on how to further develop
successful strategies.
BetterBUSINESS
Planner
Preface, continued
The Workbook Analyse your business Describes how to analyse your business. Included are
business rating questions which should provide a
health check for your business.
Business plan questions Describes how the questions that represent the major
areas in a business plan are to be completed. Space is
provided for you to write your companys information.
Write your plans Describes how to write a number of complementary
plans including a marketing and financial plan.
Appendices Ratio analysis Describes the ratios that are to be used in the section
Produce a ratio analysis.
Notepad Contains a number of lined pages for you to write
additional information should you feel it is necessary.
Sample business plan Provides an example of a Business Plan. The company
is a manufacturing organisation.
Financial statements Provides outlines for a Cash flow statement, an Income
statement and a sample Balance sheet.
Further reading Provides a number of books that can be read to further
your knowledge of business planning.
BetterBUSINESS
Planner
Before starting
Some hints before you
start
Once you familiarise yourself with the financial templates you will be able to type in
a few assumptions and have budgets and cash flow forecasts at your fingertips
instantly. Study the graphs to understand where your business stands. Prepare
multiple statements examining best and worst scenarios. This will make a difference
to your planning effort.
Use your common sense when answering the business planning Questions.
Obviously, if a question does not apply to your type of business, skip it. Before
doing so, see if the question prompts any other areas of analysis.
If you are using this book to prepare a presentation to outsiders, it needs to impress.
Read it over carefully when you have finished to make sure that it does.
If you are preparing the plan to help you to manage the business it should be written
in a format that will help you get things done. The format we use allows you to easily
follow up on allocated tasks.
Some people think concepts like segmentation or strategy development are too
complicated for them and tend to look for something more simple. Don't. These are
very simple concepts that you are most likely using already without realising. You
need to understand these concepts if you are going to prepare a good Business
Plan. We have included practical examples so that you can see how easy these
concepts are to understand.
The whole idea of preparing a business plan is to think about your business and the
things that affect it. Remember that there is no substitute for thinking.
BetterBUSINESS
Planner
Before starting, continued
Different types of
businesses
Business plans differ between organisations but the principles of planning stay the
same. The templates that we have provided are not set in concrete. They should be
personalised for your business.
For instance, if you are a service business (e.g. gardener, lawyer, trainer, cleaner) the
principles that we talk about throughout this manual will apply to you just as much as to
any other type of business. Service businesses should think about each type of service
offered as a separate product. For instance, a gardener might offer rubbish removal,
landscaping and lawn mowing. Each of these are different products. The business
should look at how much it earns from them, and which is the most profitable. This will
help the business decide whether or not to keep focusing efforts on products that are
not profitable.
Start-up businesses should try to answer all the questions with a view to deciding what
they are going to do. In order to establish a successful operation you will need to
analyse your market, look at the prospective segments, analyse your competitors and
develop strategies to launch your new products and services. The better you plan, the
better your chance of survival.
BetterBUSINESS
Planner
Starting the business planning process
The well thought out
business plan
When you are ready to start thinking about gathering and compiling your financial data,
consider the following points to achieve a well put together plan. These points are
further amplified in How to get the information for a business plan (see page 13)
One a) Look at the Appendix 3. Sample business plan (see page 80), to see how a
typical business might answer these questions.
b) Look at the Business plan questions (see page 41). These questions are about
your business and are laid out in a finished business plan format.
Two c) Read the examples and explanations that are included in the following topics:
How to get the information for a business plan (see page 13). This section
encompasses the major issues that should be addressed during the
business planning process.
Using market segmentation to help you prepare a business plan (see
page 17). Whilst this may sound complicated it really is not, and to make it
easier we have included examples to help you structure your plan.
Developing a strategy (see page 25). Whether you are a gardener, a
retailer or a banker you should have a strategy. This section provides an
example of a business analysing its past performance and developing a
strategy to increase sales in the future.
BetterBUSINESS
Planner
The well thought out business plan, continued
Three d) Look at the section on Analyse your business starting on page 34. Use the
questions in this section to help you determine your businesss strengths and
weaknesses.
Think about your past sales performance, possible segments to target, and
any threats or opportunities.
Think about your business and its future direction. What can you do better?
How can you take advantage of the opportunities offered?
Four e) Start making entries into the Workbook (see page 34). Are your strategies logical,
sensible and realistic?
Five f) Open the Financial worksheets included with the BetterBUSINESS Planner. If you
have only purchased this book, use Appendix 4. Financial statements, see page
100.
Analyse past figures and predict your sales forecasts.
Play around with different scenarios.
Six
You are now on the path to
producing a professional
looking business plan!
g) When you are satisfied that your sales forecasts are achievable and your
strategies make sense:
Open the Question and Answers screen which is where you write the text for
your plan. This is included with the BetterBUSINESS Planner software. If
you have only purchased this book use Business plan questions (see page
41).
Edit the text to make it applicable to your business
BetterBUSINESS
Planner
How to get the information
for a business plan
The Step-By-Step Guide
The following eight steps encompass the major issues that should be addressed during
the business planning process. As you proceed through these steps remember that it is
not only the finished plan that is important, but the planning process itself.
Step 1 Analyse your
Business
a) Analyse your business and take stock of where it is at present.
b) Identify all the measurable features of your business such as revenue, number of
customers, amount of repeat business, current sales conversion rates and lost
customers.
c) Do a complete accounting and financial audit analysing areas such as debtors,
creditors, cash requirements, debt levels and accounting systems.
d) Review each major component of your business from human resources through
to production and distribution.
e) Compare all these variables with previous years. This analysis should help you
to determine many of your business's strengths and weaknesses.
f) Look at less measurable areas such as the quality of management, acceptability
of products to the market, depth of established networks, reputation of the
company, etc.
BetterBUSINESS
Planner
How to get the information for a business plan, continued
Step 2 Analyse your Sales g) Look at your total sales and then break down these sales figures by product
group or major products.
h) Compared to last year, are your sales increasing or decreasing?
i) From this big picture, divide your sales by type of customer or market segment
(to better understand segmentation, refer to the Using market segmentation to
help you prepare a business plan section see page 17). This will reinforce your
understanding of who your product mix appeals to at the moment. Many
businesses find that the more they split their sales, the better their understanding
of the market and the easier it is to determine how to increase sales.
j) Remember the 80/20 rule. In most businesses 80% of revenue will come from
20% of clients. It is important to identify the top 20% of customers for two
reasons. Firstly, to direct sales programs to look after these customers and
secondly, to identify the type of future customers or prospects.
Step 3 Analyse your
Market
k) In Step 2 above, you looked at the type of customers you have. In this step we
are more concerned with all the types of people that will potentially buy your
products or services. Conduct a detailed and thorough analysis of the needs of
each market segment. Who are your customers and what are their needs?
Understand the people who have influence in your marketplace and how they
may possibly affect your sales. If possible, cultivate new contacts from these
groups. Finally, look at how the market perceives your business and its offerings.
l) Assess your market sales and trends. Is the market a good growth market? Will
external factors, e.g. legislation, economic and political issues affect your
companys long term competitiveness?
BetterBUSINESS
Planner
How to get the information for a business plan, continued
Step 4 Analyse the
Competition
m) All businesses have some form of competition, whether from direct or indirect
sources. Businesses might find that they face competition from similar products
(e.g. Apple vs IBM PCs), from substitute products (e.g. margarine vs butter) or
simply competition for the amount of dollars that the consumer has to spend.
n) A well-managed business will analyse and isolate major business opportunities
and threats. The business must evaluate the needs of the market, the
competitors offerings to the market, the major promotional selling points of
competitors and the relative success of these appeals. This should be compared
against the business is it positioned with a strong long term competitive
advantage?
Step 5 SWOT Analysis o) Steps 14 involved an analysis of your business and all the factors that affect
your business. Step 5 consists of summarising this information. This summary is
known as a SWOT analysis. SWOT is an acronym for strengths (business),
weaknesses (business), opportunities (market) and threats (market). List the
most important of these in Part 4 Strategic direction SWOT Analysis (see page
51) and develop objectives and strategies from these.
BetterBUSINESS
Planner
How to get the information for a business plan, continued
Step 6 Write the Plan p) We have included a sample plan (see Appendix 3. Sample business plan page
80) and questions (see Business plan questions page 41) laid out in a finished
business plan format. The questions will help you to analyse your business,
competitors, market and sales performance.
q) When writing a business plan, list the means by which you can capitalise on your
strengths and minimise your weaknesses. The plan should state how you intend
to take advantage of opportunities and avoid potential threats. The document
should also include a marketing plan, a finance plan and a human
resource/training plan.
r) Each section of the plan should contain objectives and strategies. Objectives
state where you are going and should be measurable and quantifiable.
Strategies state how you will achieve your objectives, these are referred to as
action objectives and these should be as quantifiable as possible. Plans should
be supported by financial statements where applicable (see Appendix 4.
Financial statements page 100)
Step 7 Allocate tasks and
responsibilities
s) After writing the plan allocate tasks, timings and responsibilities. State who is
responsible for doing the task and when the task is due.
Step 8 Monitor the plan t) All activities should be monitored on a regular basis to make sure that the
business is achieving its plan. All business managers are aware of falling into the
trap of constantly fighting fires. Keep the big picture in mind and stay focused on
achieving your goals. If any objective is not met ask the question Why not?
u) If objectives are not regularly being met you may have to reconsider your initial
plan. Events often occur during the business planning process which will affect
your initial assumptions. A good evaluation of all your objectives and the level
achieved will lead to better future planning.
BetterBUSINESS
Planner
Using market segmentation
to help you prepare a
business plan
Steps two and three of the Step-By-Step Guide involved segmenting the market. All
businesses should try to segment their market. This section looks at practical examples
and applications of segmentation.
Market segmentation is a very important concept in business planning. Basically, it
means to break up a large market into a number of smaller markets that have like
wants or needs. By doing this you will be better able to target your product to meeting
the needs of these customers (or market).
You can break up your potential customers (or market) by using a number of different
factors such as age, sex, geography, income, benefits and many more. A detailed list
of suggestions is included in the section The segmentation building model (see page
21).
Segmentation examples
Example 1 The Automobile
Market
The automobile market can firstly be separated into consumer and industrial market
segments. The consumer automobile market can then be further separated into the
following segments:
People that buy cars for safety reasons
People that buy cars for economy
People that buy cars for prestige
People that buy cars for performance
People that buy cars for size (e.g. families)
People that buy cars for off-road pursuits
If you were preparing a business plan for a company in this market you would obviously
have to develop a different price, product, promotion and distribution strategy for each
segment. Consider the pricing, style and promotion of a Volvo compared to that of a
VW. In each segment there are different environmental influences and competitors.
BetterBUSINESS
Planner
Segmentation examples, continued
Example 2 The Toothpaste
Market
The toothpaste market can be segmented by why people buy toothpaste (the benefits).
Possible segments include the following:
People that buy toothpaste because they want white teeth
People that buy toothpaste primarily as a breath freshener
People that buy toothpaste based on price
People that buy toothpaste for taste or product appeal
If you were preparing a business plan for the toothpaste market, these segments could
suggest a unique offering which could best satisfy the needs of the market.
Segmentation also helps to specifically target promotions. The target segment People
that buy toothpaste for taste or product appeal would most likely consist of children.
The product has to appeal to this age group and promotions have to be seen or heard
by them.
Example 3 The Industrial
Rubber Market
The industrial rubber market might be broadly separated into industry segments. Four
such segments might be:
Marine industry sector
Electrical industry sector
Automotive industry sector
Sporting goods industry sector
The marine industry might predominantly require rubber that was extremely water
resistant, whereas the sporting goods industry might be more concerned with the
flexibility and styling of the rubber. When preparing a business plan you might notice
that there are a number of manufacturers supplying the electrical and automotive
segments, but few in the marine sector. As part of your plan you may commence R&D
programs to develop rubber compounds that are better suited to the marine industry.
BetterBUSINESS
Planner
Segmentation examples, continued
Example 4 The Software
Market
This market can be segmented into people that need word processing capabilities, or
require desktop publishing, or people that manage their business or those that have
other needs. The word processing market may be separated into the following
segments:
Small businesses
Medium-to-large businesses
Government
Writers
Students
Home users
Example 5 The Cat Food
Market
Strategies in this market could be based on the following four possible market
segments:
People that buy cat food based on price
People that buy cat food based on nutritional value
People that buy cat food based on variety of meals
People that buy cat food based on convenience
Example 6 The
Fashionable
Clothing Market
This market might first of all be separated into two major segments, males and
females. Each of these markets can then be further segmented by age:
Toddlers
Children
Teenagers
Middle-aged
Elderly
BetterBUSINESS
Planner
Segmentation examples, continued
Further segmenting the
market
There are a number of criteria that can be used to help segment the market. We have
listed some of the major variables in more detail in The segmentation building model
(see page 21). These variables might help to further define your target market. In
Example 7 Mobile phone market we have segmented the market by general industry
type.
By using some of the other criteria, we may be able to further split these segments into
sub-segments or more clearly defined prospects.
Example 7 Mobile Phone
Market
The mobile phone market might be broadly segmented by industry type.
Small-to-medium sized businesses
Large businesses
Consumers
In order to better target our product, we might further define the mobile phone market
using the criteria in the next section. One target market might then become Broad
market.
Broad market Small business mobile phone market.
Target market details
Tradesperson, owner-operator, plumber, lives on the north shore, wants to make
the business as efficient as possible, needs a durable, dependable phone that
can be dropped and will not break.
The parameters in The segmentation building model section (see page 21) provide a
handy checklist when looking at possible segmentation approaches.
BetterBUSINESS
Planner
The segmentation building model
Selecting market segments The following tables provide an example of a business using the above criteria to break
down the Mobile Phone Market.
Not all the criteria listed in The segmentation building model will necessarily make a
good segment. Choose which variables will be most effective in managing and
providing direction for your business.
For instance, in the mobile phone market, we could have divided the market into
income levels. However, it was decided that if the market were segmented on this
basis, it would not be as meaningful as segmenting it on the basis of occupation and
product benefits, (i.e. targeting mobile phones to people who earn over $55,000 per
annum does not provide as much direction as targeting mobile phones to tradespeople
who require robust equipment).
BetterBUSINESS
Planner
The segmentation building model, continued
Segmentation parameters Example of mobile phone tradespeople
Age q
Under
25
q
2535
q
3565
q
65+
q
Toddler
q
Child
q
Teenager
q
Elderly

Not
important
Sex
Male
q
Female
q
Not
important
Occupation q
Prof.
q
Crafts
person

Trades
person
q
Farmer
q
Reception
q
Student
q
Accounts
q
Home
maker
q
Doctor
q
Senior
manager
q
Other
q
Not
important
Family Life Cycle q
Single
q
Married
q
Elderly
q
Divorced
q
Married
children
under six
q
Married
children
over six
q
Married
no
children
q
Other

Not
important
Income q
Under
$25,000
q
$25,000
$35,000
q
$35,000
$50,000
q
Over
$50,000

Not
important
BetterBUSINESS
Planner
The segmentation building model, continued
Segmentation parameters Example of mobile phone tradespeople
General Industry Type
Small
q
Medium
q
Large
q
Gov.
q
Public/
Private
sectors
q
Industrial
q
Consume
r markets
q
Other
q
Not
important
Specific Industry q
Financial
q
Prof.
q
Services

Trades
q
Computer
q
Marine
q
Electrical/
Engineer
q
Railway
q
Liquor
q
Rubber
q
Chemical
q
Food &
agriculture
q
Other
q
Not
important
Geographic q
Europe
q
Asia
q
Africa
q
North
America
q
South
America

Australia
q
Pacific
regions
q
Middle
East
q
Other

NSW
q
VIC
q
QLD
q
TAS
q
SA
q
WA
q
NT

Northern
suburbs
q
Eastern
suburbs
q
Western
suburbs
q
Southern
suburbs
q
Country
q
City
metro
q
Other
q
Not
important
Attitude q
Environ
mentally
disposed
q
Politically
disposed
q
Concerned
about the
future
q
Concerned
about today
q
Short term
price
conscious

Wants
best for
long term
q
Concerns:
image &
prestige
q
Other
q
Not
important
BetterBUSINESS
Planner
The Segmentation Building Model, continued
Segmentation parameters Example of mobile phone tradespeople
Lifestyle q
Healthy
q
Active
q
Adventure
q
Other

Not
important
Usage Rates q
High
q
Medium
q
Low
q
First
time
q
Existing
users
q
Other

Not
important
Benefits Desired q
Product
benefits
q
Tech.
perform-
ance
q
Low
price
q
Quality
q
Prestige
q
User
friendly
q
Labour
saving

Durable

Depend-
ability
q
Other
q
Not
important
Opportunities In Selected
Segment
Acceptance among the trade that a Mobile Phone is an essential tool. Tax deductible.
Promotion with plumbing tools manufacturer.
How Do We Reach This
Segment?
Contact Plumbing Association to obtain a list of members. Trade shows, hardware store
client lists, Manly Daily trades section, Yellow Pages, general press and radio advertising.
Strategy
Keep promotional campaign simple. Sell as the most widely used phone amongst
tradespeople because when you drop it, it does not break.
BetterBUSINESS
Planner
Developing a strategy This section gives an example of a company breaking down their sales, looking at their
market and the competition and then developing strategies to improve their position.
Segmentation makes the process of preparing a business plan much simpler. All it is
really doing is breaking down your business into smaller and smaller units to make it
easier for you to see what is happening. Because each segment represents a different
type of customer you might need to offer your products (or services) at a different price,
to advertise in different magazines, to sell through different avenues or to change the
product itself depending on what the customer wants.
An example Consider the car market (mentioned in Using market segmentation to help you prepare
a business plan, see page 13). Do the same type of people that buy a new Mercedes
buy a second hand VW? Think also of competitors. Would the release of a new high-
end range of BMWs affect the Mercedes market? Would it affect the second-hand VW
market? Clearly, yes in the case of Mercedes and no for the VW.
Even environmental factors will affect the different segments and product offerings in
different ways. A government tax on luxury cars would affect the Mercedes market but
not the VW market. Suppose there was only one type of car offered at one price, in one
colour and style. If you were the first company to offer a different car, at a different
price and one that the customer wanted, you would sell a lot of cars. This is what
happened with Ford and GMH 60 years ago. GMH entered the market against the
dominating Ford by offering the customer a range of cars instead of the one Model T.
These car examples might appear obvious because manufacturers have been telling us
of differences in their cars for years. Think about your business in the same context. Do
you treat all your customers as if they want the same product, at the same price,
delivered in the same way? If so, it could be time to re-examine the way you approach
your business.
BetterBUSINESS
Planner
Developing a strategy, continued
Example
A software company
Computer Inc.
Computer Inc. is a distributor of computer equipment who is looking at preparing a
business plan for the next year. Management is fairly pleased that sales have remained
about the same as last year, considering the poor economic climate. Rather than
simply estimating that the company will increase its sales by 10% next year, the
company decides to really examine its business and develop a strategy based on the
actual results.
After analysing their general business and noting that they need more staff and better
control over their finances they examine their sales separated into products and
segments. The company has divided the software market into the following market
segments:
Small businesses
Medium-to-large businesses
Government
Home market
The company has kept good sales records. (The company policy that management set
last year means that every time an order is placed, the customer is asked what type of
buyer they are. This is recorded in the computer using a code.) A detailed result of this
sales audit is included (see page 28) and because they record their sales by type of
customer it is relatively easy for them to examine their sales by market segment. For
simplicity we will only look at the computer software sales.
BetterBUSINESS
Planner
Developing a strategy, continued
Sales audit results for
Computer Inc.
Product Group
Computer Software
Sales $2m
Gross Profit $0.5m
Trend -10%
Product Group
Computer Hardware
Sales $1m
Gross Profit $0.5m
Trend +5%
Product Group
Computer Services
Sales `$1m
Gross Profit $0.5m
Trend +15%
Total Company
Sales $4m
Gross Profit $1.5m
Trend (+ -) Stagnant
BetterBUSINESS
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Developing a strategy, continued
Sales audit result for
computer software sales
Table A
separated by product and Market Segment
market segment Product Small Medium-to-
large
Government Home
Word-
processing
programs
$250,000
Increasing
$300,000
Decreasing
$100,000
Increasing
$100,000
Increasing
Spread-sheet
programs
$100,000
Increasing
$400,000
Decreasing
$150,000
Increasing
$100,000
Increasing
Database
programs
$240,000
Decreasing

Graphics
programs
$250,000
Steady

Other
BetterBUSINESS
Planner
Developing a strategy, continued
The Sales audit results chart for Computer Inc. shows that the company has a total
annual sales turnover of $4m. Given the present economic environment, management
are fairly pleased with the overall results. However, when they look more closely at the
breakdown of figures they can see some dangerous trends in the business.
The company's sales can be separated into three major product groups. This
breakdown highlights the following:
The company's sales of computer services and computer hardware are
increasing but sales of computer software have declined by 10%.
Within the computer software group:
The small business segment is growing.
Opportunities could exist to develop the database and graphics programs
into other markets in which the company has a strong competitive position.
Sales to the medium-to-large business segment in all product categories
are declining. It is essential that the business immediately evaluate
whether this is an internal problem, such as lack of advertising, reduced
number of representatives, pricing structure, supply problems, or whether
sales have been eroded due to external factors competitive or
environmental.
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Developing a strategy, continued
Competitive Analysis of
Computer Inc.
To go one step further the company could look at the competitors in each segment to
see whether this is the reason for declining sales. Consider Table A. Note that the
company's sales of word processing programs to the medium-to-large business
segment are declining. Let's look to see if this is due to competitive threats.
Word processing medium-to-
large business segment
Computer Inc. has two major competitors in this market segment with similar products.
Table B
Computer Inc. Competitor A Competitor B
Price $299.00 $348.00 $399.00
Product Medium
Capabilities
Advanced
Capabilities
Advanced
Capabilities
Promotion Direct Mail General Advertising General Advertising
Distribution Direct Retailers/Distributors Retailers/Distributors
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Developing a strategy, continued
Table B shows that Computer Inc. has the lowest price offering to this market.
Management had assumed that, with a lower price, sales would be increasing and
doing well against the competitors, but this is not the case. After doing research into
what the medium-to-large business customers really want Computer Inc. discovers:
Medium-to-large companies want a word processing program with
advanced features.
Medium-to-large companies are not overly concerned about the price that
they are charged (within reason), compared to quality.
Medium-to-large companies generally buy from the retailer or distributor
that they know as they require full software support if anything goes
wrong.
As a result of this research management realises that it needs to adapt its strategy to
stop this downward trend. There are some strategies that will form the basis of
Computer Inc's business plans.
Computer Inc's Strategy
How will Computer Inc.
increase its sales to the
medium-to-large business
segment?
The simple analysis of the business in the previous sections forms the guidelines for
the future. Computer Inc's management team realises that it must upgrade its product
and service. Simply offering a low price is not the best way to win new medium-to-large
business customers.
Computer Inc. management has now incorporated the following strategies in its
business plan for the next financial year. Management expects that these strategies will
address the sales decline of software to the medium-to-large market segment.
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Developing a strategy, continued
Marketing Objective To increase the sales of word processing software to the medium-to-large market
segment from $300,000 $330,000.
Example 1 Strategy action objectives Who When
Product Development To develop advanced word processing capabilities TB June
To develop new packaging JF May
To develop software add-on support options JF June
Price To increase the price of the product to $399.00 JF August
Promotion To develop a general advertising campaign GF March
To implement the campaign JF August
Distribution To mass distribute the product through retailers and
distributors
JF October
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Developing a strategy, continued
What about Computer Inc's
other products and markets?
It is important to note that the strategies listed only represent a small part of the
business plans sales strategy. The company still has to determine how it will maintain
or increase sales of its other products to the other market segments.
For instance, Computer Inc's sales to students will decline if it tries to sell them the
same high priced word processing program that it developed for the medium-to-large
market segment. Students will always demand a low-priced alternative. Computer Inc.
needs to assess how it can offer a lower priced product to the student market without
ruining its reputation with its medium-to-large sized customers. It might decide to
release the products under different brand names or use alternative distribution.
Conclusion Developing successful strategies is far easier when you know who your market is and
what it wants. Spend the time analysing your market and the chances are that this
research will directly equate to increased sales.
In specific action steps take a good look at your business. Separate your sales by
major product (or service) and then look at the types of people that buy this product
from you. Are your sales to these people increasing or decreasing? Compare what you
are offering against what the market wants and then decide what you can do.
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Analyse your business
Ideas to get you thinking
about your plan
Step 1 of How to get the information for a business plan, (see page 13) told you to
analyse your business. This section shows you how to do that.
Before you start to write the answers to your plan, take a few moments to answer the
business rating questions on the following pages. These ratings provide a health check
for your business, and the results will put you on the right track for answering the
BetterBUSINESS Planner questions.
The more accurate your rating the more beneficial it will be to you when you begin
writing the answers to the BetterBUSINESS Planner questions. For example, to the
question How would you rate your appointment to sales rate? ask yourself, What
exactly is my percentage appointment to sales ratio? If you conclude that for every ten
sales calls made, you make, on average, two sales, then your ratio is 20%. Next year
your objective might be to improve your sales rate from 20% 25%.
To complete the following quick surveys, circle the rank most applicable, ranging from
poor to good.
You should also measure your business wherever possible. See if you can measure
exactly what your performance level is.
When you have completed the ratings and performance measurement move on to the
more in-depth Business plan questions (see page 41).
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Rate your business
Marketing analysis How would you rate your business in the following areas?
Performance area Measurement Ranking
poor good
Follow-up of sales leads 1 2 3 4 5 6 7 8
Level of professionalism 1 2 3 4 5 6 7 8
Customer service 1 2 3 4 5 6 7 8
Conducting of regular planned promotions 1 2 3 4 5 6 7 8
Knowledge of customer needs 1 2 3 4 5 6 7 8
Success of past promotions 1 2 3 4 5 6 7 8
Regular prospecting of new customers 1 2 3 4 5 6 7 8
Appointment to close sale rate 1 2 3 4 5 6 7 8
Persistent and methodical management of
client base
1 2 3 4 5 6 7 8
Development of new Centres of influence
people that can refer business to you
1 2 3 4 5 6 7 8
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Marketing analysis,
continued
How would you rate your business in the following areas?
Performance area Measurement Ranking
poor good
Information systems (how easily can you
review sales by product, by customer
segment, appointment/close rate, ABC
customers, re-contact deadlines, geographical
performance, market sector performance,
variances to forecast, etc.?)
1 2 3 4 5 6 7 8
Direct mail 1 2 3 4 5 6 7 8
Press advertising 1 2 3 4 5 6 7 8
Radio advertising 1 2 3 4 5 6 7 8
PR releases 1 2 3 4 5 6 7 8
Exhibitions 1 2 3 4 5 6 7 8
Cold canvassing/telephone selling 1 2 3 4 5 6 7 8
Brochures 1 2 3 4 5 6 7 8
Newsletters 1 2 3 4 5 6 7 8
Other 1 2 3 4 5 6 7 8
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Financial analysis How would you rate your business in the following areas?
Performance area Measurement Ranking
poor good
Financial budgeting 1 2 3 4 5 6 7 8
Sales budgeting 1 2 3 4 5 6 7 8
Cash Flow/revenue ratio 1 2 3 4 5 6 7 8
Accounting & information systems 1 2 3 4 5 6 7 8
Availability of funds for growth 1 2 3 4 5 6 7 8
Financial structure & gearing 1 2 3 4 5 6 7 8
Level of working capital 1 2 3 4 5 6 7 8
Level of debt 1 2 3 4 5 6 7 8
Purchasing systems 1 2 3 4 5 6 7 8
Debtors level 1 2 3 4 5 6 7 8
Creditors level 1 2 3 4 5 6 7 8
Level of financial control 1 2 3 4 5 6 7 8
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Organisational
management & analysis
How would you rate your business in the following areas?
Performance area Measurement Ranking
poor good
Ability to cope with the workload 1 2 3 4 5 6 7 8
Knowledge of products 1 2 3 4 5 6 7 8
Ability to overcome objections 1 2 3 4 5 6 7 8
Sales skills 1 2 3 4 5 6 7 8
Accounting/bookkeeping skills 1 2 3 4 5 6 7 8
Management skills 1 2 3 4 5 6 7 8
Self confidence/enthusiasm 1 2 3 4 5 6 7 8
Knowledge of legal/business issues 1 2 3 4 5 6 7 8
Knowledge of technical product issues 1 2 3 4 5 6 7 8
Morale 1 2 3 4 5 6 7 8
Job descriptions and responsibilities 1 2 3 4 5 6 7 8
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Retail business analysis How would you rate your business in the following areas?
Performance area Measurement Ranking
poor good
Location of premises 1 2 3 4 5 6 7 8
Size of premises 1 2 3 4 5 6 7 8
Store layout 1 2 3 4 5 6 7 8
Presentation of stock 1 2 3 4 5 6 7 8
Stock rotation 1 2 3 4 5 6 7 8
Stock damage/pilferage 1 2 3 4 5 6 7 8
Spoilage 1 2 3 4 5 6 7 8
Parking facilities/convenience 1 2 3 4 5 6 7 8
Customer service 1 2 3 4 5 6 7 8
Quality of cash register/computer 1 2 3 4 5 6 7 8
Cleanliness of premises 1 2 3 4 5 6 7 8
Efficiency of product lines 1 2 3 4 5 6 7 8
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Production analysis How would you rate your business in the following areas?
Performance area Measurement Ranking
poor good
Capital equipment 1 2 3 4 5 6 7 8
Amount of down-time 1 2 3 4 5 6 7 8
Preventative maintenance 1 2 3 4 5 6 7 8
Reject rate of final product 1 2 3 4 5 6 7 8
Production staffing level 1 2 3 4 5 6 7 8
Overtime 1 2 3 4 5 6 7 8
Production flexibility 1 2 3 4 5 6 7 8
Work in progress 1 2 3 4 5 6 7 8
Relationship with union 1 2 3 4 5 6 7 8
Updated production process/suppliers records 1 2 3 4 5 6 7 8
Supervision 1 2 3 4 5 6 7 8
Production costs 1 2 3 4 5 6 7 8
Production innovation 1 2 3 4 5 6 7 8
R & D programs 1 2 3 4 5 6 7 8
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Business plan questions The following questions represent the major areas that are generally covered in a
Business Plan. Answer the questions in the order that they are presented to produce a
well organised Business Plan.
Part 1 Organisation
details
Write the name of your organisation and the duration of the planning period
e.g. XYZ Company, 1997 1998 or 1997 2000
Company name
Planning period
Part 2 Business profile Provide a general outline of your business, sufficient for outsiders to fully understand.
Which industry is it in? What is the major benefit, rather than product or service, that
you provide to your customers?
What business are you in?
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What are the unique features
of your business's products or
services?
Discuss product or service advantages that give you an edge in the market. Is your
product or service substantially better than your competitors?
Does your business offer the
best, the fastest, the most
powerful, the cleanest
or the most efficient
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What were your sales last
year and over the last few
years?
This provides a background to your sales situation and a lead-in to the future of the
business. For instance, you may include something like Although our sales have
increased by ten percent a year over the last three years we have never really taken
advantage of the opportunities available. This plan is being prepared to enable us to do
so next year.
If you have not performed to
budget , indicate why not.
How well have you
performed?
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What are your projected sales
and profits for the next
This is the bottom line. How much profit are you going to make?
three years?
Previous
Year
Last year Year 1 Year 2 Year 3
Sales
Gross profit
Net profit
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What proof can you provide
that you will achieve this level
of sales and profit?
Back up your forecasts with some form of evidence that there will be continuing
demand for your goods or services. Do you have any advance orders, existing
customers that have promised to use your goods or services, market research surveys
or sales experience in this industry that implies a natural growth in the market. Do you
have evidence of any external factors such as changes in legislation, competitor status
or cultural influencers that will lead to a demand for your products or services?
Add anything that re-enforces the proposition that you will be successful. For instance,
mention any large orders you have received in the past or perhaps profile some of your
existing customers. List anything that adds credibility to your business.
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Part 3 Competitive profile
How big is the total market?
Is the market growing or
declining?
Explain who will buy your products or services. Is this a good, strong, growing market
or is it declining? If it is declining you should consider diversifying into other markets.
Sometimes the figures on total market size are irrelevant, especially when a business is
only a small fish in a very big pond. For instance, a Plumber who has just set up shop
will probably get no help from knowing the size of the total Plumbing market. However,
if he is a one-man plumbing business in a particular suburb and specialising in a
particular area, it would be worthwhile him knowing how big the market is in this area,
how many competitors there are and how many specialise in the same services as he
does.
If you are trying to find out how big the market is, try contacting the association that
covers your product or service. Contact the government information service to inquire
about their published statistical information. If you are launching a new product that will
be retailed, you could contact a number of the larger retailers and ask them how many
of these type of products they would sell.
You need to establish the most reliable source of information for your product or
service.
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Can the total market be
separated into smaller sub-
markets or market segments?
Try to break down the total market into smaller segments. This will help you develop
your plans and competitively position your products and services. Examples of
segmentation, which show you exactly how to do this are included in the section
Segmentation examples (see page 17).
A quick example: If you are selling computers you might segment your market into
large businesses, small businesses, the home buyer, government bodies and students.
When you break down your market into smaller segments such as this it is easier for
you to decide how to sell your goods or services to each segment. For example, you
may need to sell your computers at a low price to students and to sell them through the
university magazine. However, to government bodies price would be less of a
consideration than reliability. You may also need to employ a sales rep to sell
effectively to government bodies.
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Are there any market trends
that will affect your business?
It is very important to know and recognise the trends and the external factors that could
affect the market, so you can assess whether or not your business will be viable in the
long term. Are there any cultural, legislative, social, environmental, technological or
other influencers that may affect your business? For example, technological influencers
have made typewriters, telexes and buggies almost obsolete. Environmental and social
issues have seriously affected the plastics industry by forcing companies who were
using plastic-based packaging to find alternatives. There are trends in the market for
following a more healthy low-fat lifestyle. The hat market will increase in coming years
because of awareness of the deteriorating ozone level. Look at your products, services
and markets and assess whether there are any potential threats or opportunities that
could affect your planning.
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How do you compare to your
competitors ?
The labels on the left hand side of the box below are examples only. Feel free to
change them to suit your company.
Your Company Competitor Competitor
Price strategy
Retail price
Payment terms
Product strategy
Quality
Ease of use
Reliability
Product life
Country of origin
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How do you compare to your
competitors?, continued
The labels on the left hand side of the box below are examples only. Feel free to
change them to suit your company.
Your Company Competitor Competitor
Promotion
No of reps
Advertising
appeal
Distribution
Exclusive
Direct Marketing
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Part 4 Strategic direction SWOT Analysis
This is a snapshot of your business. Just write down the most important points. The
better your SWOT analysis the easier it will be to plan. For instance, if your SWOT
analysis states that your company has a low quality product, then one of your
objectives might be to Improve product quality through better quality control
measures. Traditionally, strengths and weaknesses are internal factors, while
opportunities and threats are external factors.
Strengths Weaknesses
Opportunities Threats
Write down your strengths,
weaknesses opportunities and
threats
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Where are you headed? This should be a clear concise statement of where you are headed. It should state
where your company will be in 3 5 years time.
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Target market Consider market trends, profiles of your business and your competitors, who exactly
will you sell your products and services to? What market represents the best chance of
success? Where are the opportunities?
Who will buy your
products/services?
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How will you position your
business's products or
services against your
competitors? Is there a gap in
the market that you could be
filling?
Extra lined pages are
available in Appendix 2.
Notepad (see page 77)
This is an explanation of why you will win! Why will people buy your goods or services?
Are you offering the same as everyone else is or something that is substantially
different and that fills a need in the market?
There could be a gap in the market, i.e. No competitors that sell similar goods or
services at a price that you are prepared to sell at or no-one else that has a particular
feature or distributes their product in the same manner as you do. In a previous
question you looked at the features of your products and services in this section you
should look at the benefits to the customers of these features and whether your
competitors can provide the same benefits.
Discuss any major product or service advantages that give you an edge in the market
place. For instance, all watches tell the time but each manufacturer positions its
products differently. People buy Swatch watches because they are fashionable and
Rolex watches because of their image. Isolate the unique feature of your products or
services this is called your competitive advantage.
A service business would do the same. For instance, a gardener's competitive
advantage might be to offer fixed price services. This gives the customer security of
price they know exactly what the service will cost from the start. The gardener could
also offer garbage removal, lawn mowing and pool cleaning. The benefit to the
customer is ease of purchase. They can order these services with one phone call, pay
with one cheque and have a familiar face doing all the work.
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What major things will you
need to achieve to meet
these financial returns?
This is a brief outline of all the things to come, e.g. We will increase our advertising
expenditure, invest in a new machine, improve our distribution by appointing a freight
agency and better target our product to the consumer based on the results of our
market research campaign. If you are applying for funding for capital expenditure
highlight what the funds will be used for.
Marketing strategy
highlights
Product positioning
General marketing
strategy
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Production/retail strategy
highlights
Training
Organisation/
management
strategy highlights
Systems and reporting
Number of new employees
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Financial strategy If presenting to outside investors or a bank, how much do you wish to borrow
and what will be the return on investment?
Investor information
What, specifically, do you
need financing for?
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Part 5 The Plan
What Are Your Objectives
For The Organisation?
Your objectives should always be measurable and quantifiable. They should state what
you are trying to achieve. For instance, I will sell $50,000 per month of product A, I will
make a 25% gross margin and a 10% net profit.
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Write your plans
Write Your Marketing
Plan.
Promotional Develop promotions by product, by region, by segment or type of customer; Develop a
print advertising campaign; Develop a lead generation program; Contact centres of
influence; Issue a PR release; Develop a new sales approach; Contact lost customers
and past enquirers; Sell new products to existing customers; Develop an up-sell
promotion; Develop a sales promotion.
Product Improve the quality; Launch a new model or product; Develop a returns policy;
Lengthen the warranty period; Conduct R&D in the area of product x; Develop a brand
name; Provide add-on accessories to product x; Change the type of package; Group
like products into package purchases.
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Write your Marketing Plan, continued
Pricing Alter the pricing structure; Offer discounts and bulk rates; Develop distributor, agent
and retailer pricing levels.
Distribution Appoint new distributors, sub-distributors or agents; Develop material for distributors;
Sell direct.
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Write your Marketing Plan, continued
The forms that follow the layout of example 1 below, cover the major areas of your
business that you need to plan for. Use them to list all the things that you are going to
do over the next few years to improve the performance of your business and to achieve
your projected sales and profit figures.
Example 1 shows how the forms should look when filled in.
The Who heading refers to who is responsible for making sure that the tasks or
strategies are achieved.
The When column refers to when the task or strategy is to be completed.
Strategy (Action Objectives) Who When
To employ a new secretary for Sales. PH Mar
To produce an internal newsletter for staff. JB April
Example 1
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Write your Marketing Plan, continued
Marketing plan
19______ to 19______
Total Sales Objective Sales objectives by product, market
segment or any other variable that
measures company performance
1.
2.
3.
4.
5.
Marketing strategies
Milestones, tasks or action objectives Who When
E.g. to contact thirty lost customers every
month.
SK Sep 15
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Write Your Financial Plan
Example of Financial
Strategies
Eliminate cash-flow shortages by:
Improving the collection of money from debtors
Stretching out payments to creditors
Reducing expenses
Rationalising leases
Applying for a $50,000 overdraft
Looking at lower cost rent alternatives
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Write your Financial Plan, continued
Financial plan Budget Sales
19______ to 19______ Budget Net Profit
Budget Gross Profit
Budget Expenses
Financial strategies Milestones, tasks or action objectives Who When
E.g. Apply for a $50,000 overdraft. PH Aug 15
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Write Your Organisational
and Management Plan
Example of Organisational &
Management Strategies
Improve morale
Conduct a sales training course
Chart the organisation
Develop policies and procedures
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Write your Organisational and Management Plan, continued
Organisational and Number of staff to be hired
management plan
Payroll Budget
19______ to 19______
Training & Human Resource Budget
Organisational &
management strategies
Milestones, tasks or action objectives Who When
E.g. Institute weekly Sales training. CL Aug 23
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Write Any Other Company Plans
Example of Production
Strategies
Purchase new machinery
Schedule two months for installation and trials of new machinery
Commence production in October on new machinery
Spend $50,000 on R&D
Lower work in progress (WIP) inventory levels to five percent of production
Develop production policies and procedures
Reduce reject rate
Develop better production scheduling techniques in association with the
marketing department's sales forecasts
Find alternate suppliers for product x raw material
Maintain production at an average ninety percent of capacity
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Example of Retailer
Strategies
Rotate stock on a daily basis
Reduce stock damage/pilferage
Purchase a better cash register
Improve customer service through training
Improve presentation of stock
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Production plan Production Forecast
19______ to 19______ Plant Capacity
Production Costs
Production strategies Milestones, tasks or action objectives Who When
E.g. Reduce reject rate by 2% a month for
3 months.
CL Nov 23
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Produce a Ratio Analysis
When your analysis is
complete
Now that your analysis is finished you should complete the following ratio analysis
Ratio Calculated by: Expressed as
Current Ratio Current Assets
Current liabilities
#
Quick Asset (liquidity) Ratio Current Assets Inventory
Current liabilities
#
Stock Turnover Ratio Average Stock
Cost of Goods Sold
days
Creditors Days Trade Creditor * 365
Purchases
days
Debtors Days Trade Debtor * 365
Sales
days
Return On Equity Operating Profit
Net Worth
%
Interest Cover Earnings
Interest Expense
time
Sales/Employee Ratio Sales
Number of Employees
%
Gearing Net Worth
Total Assets
%
Liabilities/Net Worth Total Liabilities
Net Worth
%
Assets/Sales Ratio Total Assets
Sales
%
Gross Profit Margin Sales Cost of Goods Sold
Sales
%
Net Profit Margin Profit After Tax
Sales
%
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Appendix 1. Ratio analysis
Current Ratio = Current
Assets/Current Liabilities
(expressed as a number).
This is a measure of the
liquidity of the business.
A business is not sound unless it has sufficient liquidity to meet its obligations as and
when they fall due.
This ratio should not be accepted without looking at the individual items of assets and
liabilities in order to see whether the money coming in will meet current obligations, e.g.
stock will not pay expenses/creditors until the goods are sold and debtors are collected.
Quick Asset Ratio =
(Current assets
Inventory) / Current
Liabilities (expressed as
a number)
Like the current ratio this is a measure of liquidity of the business. However, as stock is
removed from the calculation it is a test of whether a business can meet its liabilities if it
trading immediately.
When used in conjunction with the current ratio this ratio highlights the stock and work
in progress position of the business and whether these assets have grown to an
undesired level.
The composition of the debtors should be considered, e.g. if bad or doubtful debts are
included in the ratio the true liquidity position of the business would be overstated.
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Appendix 1. Ratio analysis, continued
Stock turnover (days) =
(Average Stock/Cost of
Goods Sold) * 365
(expressed as days)
This ratio is an activity ratio, i.e. how long it takes on average to turnover inventory. It
indicates how the money spent in stock is tied up on the shelves, i.e. for (x) days or
turned over on average every (x) numbers of days.
It should be noted that the cost of goods sold or purchases figure and not sales is used
in calculating this ratio. This is because stock includes a mark up for profit.
It is important to remember that this is an average figure for the entire stock and does
not differentiate between fast, slow and obsolete stock. Nevertheless, this ratio is useful
unless there has been a substantial change in the stock mix.
It is key to convert inventory to sales and cash as quickly as possible. The faster the
stock is turned over the better, as it is not sound practice to have more capital tied up in
stock than necessary. Some industries will have greater turnover than others, for
example a fruit shop should have a lower ratio than say, a furniture store.
Your industry specific factors (norms) should be considered when evaluating this ratio.
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Appendix 1. Ratio analysis, continued
Creditor Days =
(Trade Creditors/ Purchases) *
365 (expressed as days)
If the value of purchases is not known, the cost of goods sold figure may be used as an
alternative to the stock turnover.
This ratio indicates the number of days (on average) taken to pay trade creditors. It is
also an activity ratio.
The longer the supplier is willing to wait for payment the greater your prospects of
converting inventory into sales and subsequently cash.
If creditor details are low then the company may be taken advantage of favourably
early payment discounts or it may be able to, if creditor terms permit, take longer time
to pay its account thus increasing current assets at negligible cost.
When the creditor days are higher than customary in the trade it may mean:
the company is strong enough to dictate its own terms to suppliers; or
that it is short of cash and cannot pay its accounts as they fall due.
In interpreting this ratio you will need to consider any seasonal purchasing peaks
included in the creditor figure and the effect of any unusual large purchases just prior to
the balance sheet date.
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Appendix 1. Ratio analysis, continued
Debtor Days =
(Trade debtors/sales) * 365
(expressed as days)
Another activity ratio which highlights the relationship between sales and the amounts
still to be collected on sales at the balance date, i.e. how many days on average does it
take to collect your accounts.
If the number of collection days is high than it may be necessary for the business to
review its collection policy and processes, e.g. what procedures are in place to call and
remind clients when their account is overdue, review credit limits and or legal action to
recover unpaid accounts.
A low number of days could indicate that the majority of business sales is on cash
terms. The same considerations that applied to the Creditor Day ratio also applies to
this ratio.
Return on equity = (operating
profit after income tax/
Net Worth)
(expressed as a percentage)
This ratio is used as a measure of efficiency in the use of the total funds at the disposal
of the business.
It gives the percentage of profit after taxation generated by the investment of equity
share holders.
Interest Cover =
(earnings before interest and
tax/interest expense)
(expressed as times)
This ratio measures the safety margin available for payment of interest on loans.
Naturally a higher ratio will make your banker to feel more comfortable!
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Appendix 1. Ratio analysis, continued
Sales/Employee ratio =
(sales/number of employees)
(expressed as a percentage)
This ratio indicates the level of sales generated by each employee.
Gearing i.e. Net Worth/Total
Assets (expressed as a
percentage)
This is the relationship between a businesses assets and the relative funding for those
assets provided by its owners i.e. for every dollar of assets the owners have
contributed (x cents).
The greater the ratio the less the gearing for the business i.e. outside debt.
It is an indicator of the companies liquidity and solvency.
Total Liabilities/Net Worth
(expressed as a percentage)
This is the mirror image of the Net Worth/Total Asset ratio i.e. the greater the ratio the
higher the gearing for the business.
Asset/Sales Ratio =
(Total Assets/Sales)
(expressed as a percentage)
This is an efficiency ratio.
It indicates the percentage of assets used to produce a dollar of sales. More efficient
use of assets means less funding requirements per dollar of sales.
Management has a direct involvement in determining the businesses asset efficiency.
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Appendix 1. Ratio analysis, continued
Gross Profit Margin =
(Sales Cost of Goods Sold)
/ Sales (expressed as a
percentage)
This ratio provides an indication of the profit generated, after direct material costs, per
dollar of sales. Naturally a business would like to maximise its GPM where possible.
Care must be exercised when comparing the ratio across years or with similar
businesses to ensure that the makeup of the cost of goods sold (product mix) has
remained constant. A variation in the product mix could have a substantial effect on the
gross profit margin. This ratio is useful in comparing your company with similar
companies within the same industry.
Net Profit Margin =
Profit after tax/sales
(expressed as a percentage)
Measures the percentage of profit generated per dollar of sales.
Care: Ratios should not be
accepted in isolation.
Several ratios, including their composition must be examined and any trends (year by
year) observed or a wrong conclusion may be drawn.
Note You may wish to consult your Business Advisor/Accountant regarding the ratios
described in this appendix. This will help you to better understand the ratios and their
significance to your business.
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Appendix 2. Notepad
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Appendix 2. Notepad, continued
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Appendix 2. Notepad, continued
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Appendix 3. Sample business plan
Sample of a finished
Business Plan
Most people find it difficult to get the feel for a Business Plan until they see an example.
The following pages include a sample Business Plan for XYZ Company. This
company is a manufacturing organisation. No matter what type of business you are in,
the general business planning principles will be the same.
This plan has been based on
the product Widget.
A Widget is an imaginary name that could refer to anything. In this case the word
Widget has been used to refer to a product in the industrial market. This is an example
of a fairly simple business plan.
Figures used throughout this plan are indicative only and do not refer to any industry
norm. Wherever possible figures will appear financially correct within the context of the
plan presented but occasionally there will be anomalies. For instance, some figures are
used differently in different situations to help guide the reader through the content and
workings of the plan. Similarly, for ease of reading and comprehension, in some
sections of the plan not all competitors, segments, etc. are shown.
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Business Plan
XYZ Company
Submitted To The Which Bank
Loan Applied For $250,000
Reason Capital Expansion
Date March, 199C
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Business profile XYZ was incorporated in Statesville in 19XX. The company manufactures and
distributes Widgets which it makes entirely at its in-house manufacturing plant. The
company has twenty employees at Head Office and one sales office, with two sales
representatives, interstate.
XYZ has achieved an excellent reputation as a high quality supplier of Widgets.
Widgets are protective casings that are sold to manufacturers of motors. They protect
the motor from the external environment offering protection against water, temperature
fluctuations, corrosion, dust, etc. It is estimated that a Widget can increase the life of a
motor by almost a third.
This business plan has enabled XYZ to clearly see what business the company is in
and where it is headed. In doing so, the company has pinpointed some significant new
product and market opportunities which could increase sales quite substantially. The
company no longer sees itself as simply in the business of supplying Widgets. It now
sees itself in the business of protecting and extending the life of motors. By defining
the business in this way the company has identified possible new services such as
contract service agreements and training. It sees new product opportunities such as
anti-corrosive paints and materials, lubricants and other engine protection products that
would fit well with its existing customer base. Instead of just supplying Widgets, XYZ
will look to supply its customers with a whole range of goods and services.
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Unique features of XYZ
Widgets
XYZ's Widgets are generally considered to be the best quality Widgets in the
marketplace because of their high temperature resistance and excellent waterproofing
capabilities. Independent tests from the University of Widgets indicate that XYZ
Widgets have an average life of five years whereas those of the competition have an
average life of only three years.
Sales & Profit Forecast Although sales have increased by ten percent a year over the last two years the
company has not taken full advantage of the market opportunities which have
appeared. The company will now, over the next period, adapt its products and selling
efforts to growing new markets whilst maintaining its market leadership in its existing
markets.
Last year This year 199B 199C 199D
Sales (000's) $5,355 $5,831 $6,500 $6,900 $7,300
Gross Profit $1,874 $2,624 $3,900 $4,140 $4,380
%
Gross Profit
35% 45 % 60% 60% 60%
Net Profit $107 $583 $975 $1,035 $1,095
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Proof that XYZ will achieve
this level of sales
It is anticipated that XYZ will achieve this increase in sales because:
The company has increased sales by ten percent over the last two years
and is geared for growth.
The company has an excellent reputation and good customer base which
can be relied upon to place future orders.
Although the market leader, the company has never targeted the marine
and heavy industrial equipment segments. These markets are increasing
at a substantial growth rate. A competitive analysis of XYZ has shown that
the company has substantial product benefits over the competition. It is
estimated that XYZ can become a major player in these segments. The
company will start running promotions to these segments commencing in
the first quarter of this year.
The company will be placing more emphasis on markets that are in the
growth and maturity stage of the product life cycle and less on those that
are in decline.
Thirty percent of the current sales forecast has already been achieved with
advance orders. This is eleven percent up on last year's figure.
Last year the company could not supply product for a two month period on two product
lines. These production limitations will be resolved by the installation of new machinery
which will not only increase the capacity of the plant but increase the quality of the
product.
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Market & competitive profile
Total Market The total market for Widgets consists of just about any manufacturer of motors and
mechanised equipment as all these manufacturers need to have protective casings for
their motors.
The Widget Association estimates that in the last financial year the total market for
Widgets was $17.4m and growing at around 5% pa. XYZ's current sales are
approximately $5.8m which would equate to a 33% share of the total market.
Market Segments Within the total market XYZ has identified several different types of customers with
different types of selling needs. These types of companies have been identified as:
Manufacturers of motors for the Marine industry
Manufacturers of motors for the Automotive industry
Manufacturers of motors for the Electrical industry
Manufacturers of motors for the Aeronautical industry
Manufacturers of motors for the Heavy Industrial industry
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New Product Opportunity In addition to this traditional market, research by the marketing department has
discovered that add-on products to the Widget and related markets of contract
maintenance, service parts, relocation and installation of equipment, lubrication, anti-
corrosive and other associated materials are worth around $50m a year. This is an area
that XYZ could very easily diversify into to rapidly expand the business.
The diversification into these other markets will be detailed in a report to be released
next month evaluating these product opportunities. The rest of this plan will concentrate
on getting the core of our business correctly positioned to maintain and strengthen our
33% market share position.
Warning There are trends in the market that are undermining XYZ's strong competitive position.
The company must adapt to these trends now or face the consequences
General Market Trends Over the last five years there have been trends in the market that have led to the
changing importance of the various market segments. In the past, XYZ has always
concentrated on the Automotive segment. Last year's Automotive segment was 50% of
the total market. However, it can be seen from the pie chart below that the Automotive
segment is rapidly declining due to legislation and tariff changes whilst other segments,
such as the Marine segment, are growing. For XYZ to survive they will need to target
their future efforts to the growing segments.
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Size of Market Segments
today
The Automotive industry's decline from 50% of the market to 35% is primarily due to
two of the largest manufacturers shutting down their operations and moving their plants
offshore. The Marine and Heavy Industrial equipment segments have increased in
relative importance over the last five years.
These trends are expected to continue over the next few years. Consequently, XYZ will
start to direct more programs at these two growing segments. XYZ can gain a
considerable share of these two segments because of the superior technical
capabilities of their Widgets.
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Detailed Competitor Profile Widgets
XYZ Widget Sly Widget ABC Widget
Price Strategy
Retail Price $615 $500 $595
Payment terms 30 days 7 days 7 Days
Product Strategy
Temperature
Resistance
180C 120C 120C
Waterproofing Excellent Poor Excellent
Reliability Excellent Medium Medium
Product Life Average 5 years Assume 3 years Assume 3 years
Country of origin Local Imported Local
Promotion
No of reps 8 5 10
Advertising appeal The Best Sly Widgets are
durable widgets
The specialist
marine Widget
experts
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Strategic direction
Target market
Who will buy XYZ Widgets?
Based on these market trends and profiles of the business and competitors it has been
decided to concentrate XYZ's efforts toward the following segments:
Marine industry motor manufacturers
Automotive motor manufacturers
Heavy industrial equipment motor manufacturers
Product positioning Generally, the product will be positioned as the highest quality Widget in the market.
XYZ has recognised the problems associated with mass marketing and will position the
product slightly differently in each segment.
Marine segment: The company will emphasise the superior waterproofing capabilities of
XYZ's Widgets.
Heavy industrial
segment:
The company will emphasise the durability of the product.
Automotive segment: The company will emphasise the overall high quality of its Widgets and the
flexibility of XYZ to customise orders to meet customer's requirements.
The specific strategies and actions for each major area of the business are explained
over the next few pages.
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Strategy highlights
Marketing strategy highlights XYZ will better position and target products to growth markets over the next planning
period. The company will strengthen its sales performance in various sales territories
through the use of defined strategies which are detailed in the marketing plan.
Production strategy highlights Over the next year the company will upgrade the plant by purchasing a new Widget
machine. It will remove the current major bottlenecks in production and reduce the
Widget reject rate to ten percent.
Organisation and
management strategy
highlights
Over the next period XYZ will employ five full time and two part time staff. The
company will concentrate on developing overall policies and procedures in all areas. A
training needs analysis will be conducted.
Financial strategy highlights The company will increase gross margin to forty-five percent which will result in a
strengthening of the bottom line. Emphasis will be placed on consolidating and reducing
debts to help fund new capital expansion.
Loan The company is requesting a loan of $250,000 to finance purchase of a new Widget
machine.
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Marketing strategies Milestones, tasks or action objectives Who When
Promotional Strategies Develop a corporate brochure HB June
Print Advertising Advertise monthly in magazines that are specifically targeted to production
managers in the automotive, marine and heavy industrial segments
HB Jan
Advertise monthly in magazines that are aimed at production managers in the
general industry
HB Jan
Advertise quarterly in magazines that are aimed at purchasing officers HB Jan
PR Program PR release to be initiated each month to various trade journals and
magazines
HB Jul
Lead Generation Program Conduct monthly on-going lead generation program. Send out monthly direct
mail leaflets with response coupons. Qualify leads and make appointments
through telemarketing staff
JL Oct
Centres Of Influence
Program
Personally contact at least ten production consultants each month.
Produce a monthly newsletter that shows XYZ Widget examples
JL Oct
Sales Force Employ two telemarketing staff BC Sep
Employ sales specialist for marine segment HB Mar
New program for the sales force, allocating reps to accounts and segments
rather than area
JL Jan
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Marketing strategies,
continued
Milestones, tasks or action objectives Who When
Lost Customers Contact all past customers that have not re-ordered. Ask why. Can we win
back their business
LN Dec
Follow up Enquiries Contact all enquirers monthly. Have they have purchased from a competitor.
If so, why?
LN Dec
Existing Customers Follow up new customers two weeks after purchase to ensure they are
satisfied with product
LN Jul
Send quarterly newsletter to existing customers to keep them informed of our
other products
LN Jan
Try and up-sell all enquiries for our standard range to our premium range LN Feb
Sales Promotion Develop an ongoing sales promotion to target existing customers LN Aug
Marketing Next Year's Objectives
Sales Objectives by Market Segment
Automotive Segment To increase sales from $4.016m $4.373m
Marine Segment To increase sales from $0.268m $0.291m
Heavy Industrial Segment To increase sales from $0.536m $0.583m
Total Sales of Widgets To increase sales by 10% $5.83m
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Product Strategies Milestones, tasks or action objectives Who When
Supply Maintain a maximum of one week to dispatch from date of order
CQ Jan
Warranty Extend the warranty from one year to three years
CL Jan
Pricing Strategies Milestones, tasks or action objectives Who When
Price Level Maintain price level in all segments at 10% higher than competitors to
reinforce the quality image
PH Jul
Discounts Offer a 5% discount for payment with order
PH Jul
Manufacturers Agents Pay a 15% commission on retail price of all confirmed sales orders passed to
us by our manufacturer's representatives
PH Jul
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Distribution strategies Milestones, tasks or action objectives Who When
Channel Distribute direct to the client where possible. Use manufacturer's agents in
outer region
CQ Apr
General Marketing
strategies
Milestones, tasks or action objectives Who When
Competitor Profile Keep updated competitor profile
PH Jun
Marketing information system Document on every enquiry How did you hear about us?
DR Jul
Document on every order How did you hear about us?
DR Jul
Produce monthly sales reports by product, by market segment, by territory
and by sales representative
DR Mar
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Production strategies Milestones, tasks or action objectives Who When
New equipment Purchase new Widget machine
CL Mar
Installation Have new equipment installed and running at full capacity
CL May
Production scheduling Remove major bottlenecks
CL Feb
Quality rating Company to reach AAA standard
CL Feb
Quality control 100% of Widget Premium to be audited. 10% sampling of other products
DM Jun
Reject rate Reduce reject rate from 12% to 5% over the next year
DM Jun
Raw materials Reduce raw materials costs from 38% to 36%
DM Jun
Research/development Adapt new Widget technology into present production
CL Jun
Technology transfer Prepare a plan showing how the company can adapt the new technology to
other existing products and spin-off products
CL Dec
Inventory level Reduce the inventory level to eight turns per year
DM Jun
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Production strategies,
continued
Milestones, tasks or action objectives Who When
Production procedures and
policies manual
Develop detailed procedures and policies manual detailing production
processes, times, materials, man-hours, etc.
DM Jan
Production Next Year's Objectives
Production Forecast To produce 10,025 units
Plant Capacity To operate on average at 90% of capacity
Production Costs Reduce production costs by 8%
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Financial strategies Milestones, tasks or action objectives Who When
Cash Flow Eliminate cash shortage in the traditional tight periods of December
January
PH Jun
Collection Days Reduce the average collection days from 45 days to 30 days PH Jun
Payment Days Maintain current payment of bills, on average, to 30 days OJ Jun
Expenses Develop and implement new policies on approval and signatories on
expenses
PH Mar
Leases Pay off the existing lease on capital equipment, thus reducing the monthly
financial burden
PH Jun
Overdraft Reduce the overdraft from $50,000 to $30,000 PH Jun
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Financial strategies,
continued
Milestones, tasks or action objectives Who When
New Equipment Organise funding for the $500,000 expenditure on new equipment
PH Jan
Inventory Improve the number of stock turns to eight a year
DM Jun
Rent Negotiate new terms on the premises and reduce existing payments by 10%
NI Aug
Bank Charges Renegotiate with the bank and consolidate some outstanding loans with lower
interest rates
NI Aug
Financial Next Year's Objectives
Net Profit Forecast Net Profit $583,000
Gross Margin To increase the Gross Margin from 35% to
45%
Budget To not exceed the following expense
budgets.
Production Budget $1,000,000
Marketing Budget$500,000
Payroll Budget $790,000
Management Overheads$800,000
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Human resource
strategies
Milestones, tasks or action objectives Who When
Administrative Draw an organisation chart MT Aug
Develop incentive scheme related to job requirements MT Aug
Policies and procedures Develop policies and procedures manual BC July
Employ/re-deploy staff Employ two machine operators MT Mar
Employ one quality control sorter MT May
Employ two telemarketers BC Sep
Employ one specialist marine salesperson BC Mar
Employ one marketing assistant BC Feb
Employ one accounts receivable person PH Jul
Training Carry out a training needs analysis MT Jan
Morale Install suggestion box MT Jan
Organise monthly meetings to follow up tasks MT Jan
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Appendix 4. Financial statements
Cash flow statement
The Cash Flow statement is an extremely important document that needs to be
prepared on a monthly basis. A Cash Flow statement shows how much cash the
business will have on hand. It only takes into account when bills are actually paid and
when monies are actually received. For instance, suppose that $100,000 worth of
goods are sold this month. Although this is registered as a sale this month, the money
will not be physically received until next month or even later. Therefore it will not appear
in the Cash Flow statement until the month it is physically received.
The same applies to expenses. An advertisement in the Yellow pages, costing $4,000
for the whole year, will only appear in the Cash Flow statement when it is physically
paid.
It does not matter how healthy the order book looks, if bills cannot be paid the business
will fail.
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Cash flow statement, continued
The terms used in the left column will provide you with a guideline, however, you may
need to alter some to better suite your business.
Budget Actual Variance
OPENING BALANCE
Cash Inflow
Cash Sales
Cash from Debtors
Interest Revenue
Other
Total Available
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Cash flow statement, continued
Cash Outflow
Wages
Rent
Credit
Accounting fees
Selling and Admin. Expenses
Office Expenses
Purchases of Assets
Loan Repayments
Director's Drawings
Total Outflow
CLOSING BALANCE
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Income statement
Income statements (also referred to as profit & loss statements) are important as they
tell you whether or not you are making a profit. Businesses should prepare these
statements on a monthly basis. Often, to simplify these reports, rather than trying to
record the complex inventory movements, many businesses prepare their operational
budgets by averaging out a cost of sales figure.
Budget Actual Variance
Sales
Less Cost of Goods Sold
Opening Inventory
Purchases
Duty on Purchases
Less Closing Inventory
Gross Margin
Add Miscellaneous Operating
Revenue
Commission Revenue
Discount Revenue
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Income statement, continued
Less Selling and Distribution
Expenses
Advertising
Commission Expense
Delivery Expenses
Salaries - Sales
Vehicles
Depreciation on Showroom
Equipment
Administration and Management
Expenses
Audit Fee
Directors' Fees
Office Expenses
Salaries - Office
Telephone
Depreciation on Buildings - Office
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Income statement, continued
Financial Expenses
Bad Debts
Doubtful Debts
Discount Expense
Interest on Debentures
Net Operating Profit
Add Non-operating Revenue
Profit on Sale of Surplus Equipment
Net Profit before Tax
Less Provision for Income Tax
Net Profit after Tax
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Sample balance sheet
CURRENT ASSETS
Cash
Receivables
Inventories
Total Current Assets
NON CURRENT ASSETS
Property, plant & equipment
Intangibles
Total Non Current Assets
TOTAL ASSETS
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Sample balance sheet, continued
CURRENT LIABILITIES
Creditors & Borrowings
Provisions
Total Current Liabilities
NON CURRENT LIABILITIES
Creditors & Borrowings
Total Non Current Liabilities
TOTAL LIABILITIES
NET ASSETS
SHAREHOLDERS' EQUITY
Capital - Company
Retained profits
TOTAL SHAREHOLDERS' EQUITY
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Appendix 5. Future reading
Cash flow and how to improve it, Leon Hopkins, Wrightbooks, Australia 1993
How to organise and operate a small business in Australia Sixth edition, John W.
English, Allen & Unwin 1995
How to prepare a business plan, Edward Blackwell, Wrightbooks, Australia 1996
Market research and analysis, planning and control Third edition, Richard D. Irwin,
Inc., USA 1989
Preparing a business plan, Dr. D Samson (Department of Industry, Technology,
Commerce), AGPS Press publication 1991
The business plan State-of-the-art guide, Michael ODonnell, Lord Publishing Inc.,
Wayland MA 1988
Your own business A practical guide to success Second edition, Wal Reynolds,
Warick Savage, Allan Williams, Thomas Nelson, Melbourne, Australia 1992