How to write your own business plan (part two) [2006]
- Date : (2006-03-27)
- Author : SAIE
How to write your own business plan (part two)
Profile When Peter Vundla and his five partners went into business, they knew that they were in a unique position to corner the market. Their business? HerdBuoys Advertising and Marketing Agency. When the agency opened its doors in 1991, it became the first black-owned and -led advertising agency in South Africa. Why is this significant? Because apartheid was soon to be abolished and South African businesses were finally turning their attention to the black consumer market. Since Peter and his partners understood the culture, customs, lifestyle, aspirations, needs and wants of black South Africans, they were in the perfect position to sell their expertise and knowledge to South Africa’s top businesses. The partners worked hard to build a sound reputation for their company and to attract top clients. They soon made a name for themselves and acquired big name clients. In 1994, HerdBuoys was awarded the title “Small Agency of the Year”, proving that if you know where you are going, success will follow.
What goes into a business plan? In the last issue, we looked at part one of how to write your own business plan. In this issue we bring you part two, which covers the running of your business and all its financial aspects. 4) Running your business. 4a) Start-up plan. When, where and how will you get your business started? How long will you need to prepare everything? Will you need permission from anyone? How will you organise everything you need? What will it cost? 4b) Production plan. What steps are involved in making your product or providing your service? For example, you could include a recipe or a procedure. 4c) Operational plan. What steps are involved in running your business. For example, when will you purchase materials? How often will you make deliveries? When and where will you sell your products or offer your service? 4d) Sales forecast. What sales do you expect? Provide a clear forecast showing your weekly and monthly sales targets for your products or service. 5) Financial aspects. 5a) Fixed (overhead) costs. List all your fixed costs. Fixed costs are the unavoidable costs of doing business. (e.g. rentals, telephone costs, equipment costs, salaries, etc.). Fixed costs exclude the direct cost of your products or your service. 5b) Variable (direct) costs. List all your variable costs. These are costs that increase with higher sales (e.g. materials and packaging). These are direct costs because they are directly linked to sales. They are the direct cost of making a product or offering a service. 5c) Break-even point. Break-even point is simply the level of sales you must reach to cover your costs. Break-even point = Fixed Costs ÷ ((Sales Forecast – Direct Cost of Sales) ÷ Sales Forecast). Whew! That’s a mouthful, but it’s important. For instance, say your business has monthly fixed costs of R600, a sales forecast of R1250, and the direct cost of these sales is R500. Break-even point = R600 ÷ ((R1250 – R500) ÷ R1250) = R1000. This shows that if you achieve sales of R1000, you will cover your fixed costs plus the direct cost of those sales. Knowing this helps you judge how risky your business is, and motivates you to push for sales. 5d) Cash flow forecast. Provide a forecast of your monthly income, costs and profit (or loss). How? Simple! Use your sales forecast to work out your monthly income as well as the monthly cost of those sales. And your monthly profit is simply your income less your cost of sales and less your fixed costs. 5e) Profit forecast. How much profit are you aiming for? And what level of sales must you achieve to reach your profit target?
Writing your business plan may seem like a daunting task, especially trying to figure out the financial side of things. After all, it’s difficult to predict how well your business will do. However, by being as honest and realistic as you can up front, you will start a business that has a real shot at success. Not one based on hopes and wishes. By writing a business plan, you will get a clearer picture of your business and its weaknesses. This can mean the difference between success and failure. In the next issue, we will look at potential threats to the success of your business and how you can overcome obstacles.
