Business Planning 1111 1011 2011 3011 711 1111 1011 2011 3011 711 This Page Intentionally Left Blank Business Planning A guide to business start-up David Butler OXFORD AUCKLAND BOSTON JOHANNESBURG MELBOURNE NEW DELHI 1111 1011 2011 3011 711 1111 1011 2011 3011 711 Butterworth-Heinemann Linacre House, Jordan Hill, Oxford OX2 8DP 225 Wildwood Avenue, Woburn, MA 01801-2041 A division of Reed Educational and Professional Publishing Ltd First published 2000 © David Butler 2000 All rights reserved No part of this publication may be reproduced in any material form (including photocopying or storing in any medium by electronic means and whether or not transiently or incidentally to some other use of this publication) without the written permission of the copyright holder except in accordance with the provisions of the Copyright, Designs and Patents Act 1988 or under the terms of a licence issued by the Copyright Licensing Agency Ltd, 90 Tottenham Court Road, London, England W1P 0LP Applications for the copyright holder’s written permission to reproduce any part of this publication should be addressed to the publishers British Library Cataloguing in Publication Data Butler, David Business planning: a guide to business start-up New business enterprises – Planning Business planning I Title 658.1′141 ISBN 7506 4706 X Typeset by Florence Production Ltd, Stoodleigh, Devon Printed and bound in Great Britain by Biddles Ltd, Guildford and King’s Lynn CONTENTS Preface vii Chapter The importance of business planning Chapter The structure of the business plan 12 Chapter The business idea 44 Chapter Personal skills and abilities 62 Chapter Identifying relevant legislation 76 Chapter Financial planning 106 Chapter Financial controls 125 Chapter Sources of finance 140 Chapter Sales and marketing 153 Chapter 10 Monitoring and controlling quality 175 Chapter 11 Customer service 188 Chapter 12 Premises requirements 198 Chapter 13 Physical resource requirements 211 v 1111 1011 2011 3011 711 Contents 1111 1011 2011 3011 711 Chapter 14 Recruiting and employing staff 224 Chapter 15 Formulating the business plan 244 Chapter 16 The NVQ assessment process 251 Appendix: Summary of Units and Elements of the revised Owner Manager NVQ standards 268 Index vi 273 Preface Preface Preface Much of the contents of this book are based on empirical experience – been there, done it, got the T-shirt, and learnt by my own mistakes over a fifteen-year period; and so I hope that by passing on this experience, I might save the readers some grief of their own The book is intended to serve two key purposes, which for many of its target audience, will overlap each other First, it is intended as a course textbook for students and candidates who are studying for either the NVQ Level Business Planning, or the Institute of Management Certificate in Management (Business Start-up), which closely follows the content and syllabus of the NVQ The Vocational Standards for the NVQ Level Business Planning were revised in 1999 by the Small Firms Enterprise Development Initiative (SFEDI) The SFEDI, alongside the Management Charter Initiative (MCI), is a partner in the Management and Enterprise Training Organization (METO) which has incorporated the lead-body roles of these two organizations under one umbrella, and is now responsible for establishing the national vocational standards for all aspects of management The book is intended both to provide the basic factual information necessary to gain the underpinning knowledge to achieve the NVQ, along with advice and guidance on the preparation of suitable portfolio evidence which will enable the vii 1111 1011 2011 3011 711 Preface 1111 1011 2011 3011 711 candidate to be successfully assessed for the NVQ or Certificate qualifications In producing the necessary evidence requirements to meet the NVQ assessment process, the candidates will also produce for themselves, a feasible business plan which is capable of being lifted directly out of the NVQ portfolio for presentation to a bank manager, or an alternative potential source of finance Second, and on a much more practical level, the book is aimed at providing a readable and structured guide for the increasing numbers of people who each year consider the option of setting up a small business or becoming self-employed It outlines the options for operating the business and the many risks involved It also examines a wide range of aspects that must be considered and assessed as part of the process of setting up a business For those aspiring owner-managers, the information about NVQ structure and assessment is unlikely to be of much interest But whether the reader’s objective is to produce a business plan to simply achieve a qualification, or to produce such a document to convince a dubious bank manager of the viability of a business proposition, many of the key aspects to be considered are the same Most important of all, a careful and detailed analysis of those aspects can provide a yardstick by which potential entrepreneurs can objectively evaluate the true risks, pitfalls and potential profits of their dreams The book has been deliberately formulated to raise a continuous stream of questions throughout, which are intended to prompt the reader to relate them to their own particular business situation If you keep asking yourself these questions at each stage, then hopefully you will avoid some of the problems that befall many new businesses in the early stages The biggest problem faced by small firms is that of surviving the first year or two A basic knowledge of the process of planning and organizing a business can substantially increase the chances of survival, with or without the accompanying viii Preface qualifications This book is aimed at providing some of that 1111 knowledge and information to improve those chances Good luck with your venture! David Butler 1011 2011 3011 711 ix Business Planning 1111 1011 2011 3011 711 will also be familiar with the vocational standards and evidence requirements Good advice on the presentation of suitable evidence can again save a great deal of time writing, assessing, changing, reassessing, correcting for yet more assessing etc Most people who take the NVQ Level Business Planning are intending, or at least considering, starting up their own business and, therefore, it is the completion of the business plan as opposed to the NVQ assessments that is of paramount importance to them Similarly, as much as bank managers like to see that a potential customer has a business planning qualification, there is nothing like a sound business plan and a detailed budgetary plan and cash flow forecast to stir them 264 Have the tutors had any direct experience as ownermanagers of small businesses? This may seem like a silly question, but it never ceases to amaze me how many business tutors have no actual business experience and how many trainers contracted by TECs, or employed by Enterprise Agencies, are retired middle managers from large companies, local authorities or public utilities who just assume that what is appropriate for large organizations, will suit small firms The training requirements of owner-managers are very different from their counterparts in big companies, as they need a much wider range of skills to succeed in business The average owner of a small firm is also the accountant, sales person, production manager, credit controller and, often, the van driver and toilet cleaner as well Big companies can afford longterm strategic planning, but for most small firms survival is the primary objective in the early days, and forward planning is measured in months rather than years until the company is well established and financially stable Pressure of work and shortage of time leads to reactive rather than proactive management Most small business people have to learn by their mistakes and, having done so, their experiences are most valuable to people who are The NVQ assessment process just about to embark on their first enterprising venture Accountants may understand the mechanics of running an efficient small business, but only an owner-manager can describe the pressures and practicalities involved, from their own personal experience Is the assessment process clearly defined? Are you aware of what will be required and how you will need to present your evidence? Tales abound of less experienced assessors who pile on demands for more and more evidence to ensure that everything is adequately covered, largely because they are too inexperienced to differentiate between good evidence and insufficient evidence The NVQ assessment process is not intended as a paper chase – one or two good pieces of evidence will suffice for any performance criterion, and most items of evidence can be used against quite a number of them Ideally, the evidence presented for an element should relate to as many of the performance criteria as possible, so as to construct an overall picture of the candidate’s competence, rather than a piecemeal itemized description This is often described by assessors as the story-book approach, where the candidates use the evidence to paint a picture in the assessor’s mind of their competence It is also important that the assessment documentation is easy to read and follow, as this can vary widely from one awarding body to another Onerous checklists of range statements etc can distract the candidate’s attention from the main objective, which is to produce a viable and usable business plan not just for the NVQ, but for the business itself Some training providers produce standardized business plans where the candidate just fills in the boxes These may be of assistance in achieving the NVQ, but not only they stifle any individual flair and imagination, they are not conducive to producing a finished document which can be lifted out of the portfolio and presented directly to a bank manager or potential lender Unfortunately, possession of 265 1111 1011 2011 3011 711 Business Planning 1111 1011 2011 3011 711 the NVQ Level Business Planning does not convey with it automatic survival in the marketplace However, possession of a good business plan can at least point you in the right direction In summary, a good training provider will provide you with clearly defined and easy to use assessment documentation It will offer practical and useful training that will be of relevance to the new owner-manager, preferably delivered by someone with direct knowledge of the small business environment It will provide guidance and support in the preparation and assessment of the portfolio but, most important of all, it will facilitate preparation of a viable business plan in a format and style that can be presented to a bank manager without modification Institute of Management – Certificate in Management The syllabus of the Business Start-up Certificate covers basically the same underpinning knowledge requirements as the (Business NVQ programme, although its contents are covered in slightly Start-up) This programme of study has been designed for those people who prefer the conventional means of assessment rather than the NVQ process It can be taken as a stand-alone qualification or in conjunction with the NVQ in Business Planning as a double qualification Although available on a distance-learning basis, participants are encouraged to meet together with other aspiring entrepreneurs to exchange ideas and information, and to discuss their problems more detail, and delivered in a different format: 1.1 Entrepreneurship (generate the business proposal) 1.2 Financing the business (progress the business proposal: establish financial requirements) 1.3 Business planning (prepare the business plan) 1.4 Marketing the business 266 The NVQ assessment process 1.5 Management of the business (managing, monitoring and 1111 controlling business operations and quality) 1.6 Legal requirements (progress the business proposal: estab4 lish legal requirements) 1.7 Personnel planning (personnel planning and develop- ment) The Certificate in Management (Business Start-up) is awarded 1011 to candidates who have completed assessments for the above seven modules, along with an overarching project, e.g the production of a comprehensive business plan that covers most aspects of the syllabus It is intended as a personal and profes- sional development programme for those people who are either about to start a new business, or who are in the early stages of new business development It is perhaps best suited to those who might become self-employed in the more distant future, but for whom the production of a business plan is more of an academic exercise in the near future For example, the voca- 2011 tional students who need to understand the process of business planning, but whose immediate need is the completion of their vocational studies Further reading Walton, J (1996) The NVQ Handbook: A Practical Guide for Providers and Assessors IoM and Butterworth-Heinemann 3011 711 267 1111 1011 2011 3011 711 Appendix Summary of Appendix Units and Appendix Elements of the revised Owner Manager NVQ Standards Small Firms Enterprise A1.1 Describe the proposed business DevelopA1.2 Review the market ment A1.3 Evaluate the likelihood of success with the proposed Initiative Ownerbusiness Manager Standards A2* Assess your own skills and capabilities for for NVQ/ running the business SVQ Level Business A2.1 Identify the skills needed Planning A2.2 Analyse and evaluate your own skills A1* Assess the potential of the proposed business A2.3 Devise your own self-development plan A2.4 Monitor your own performance Note: * denotes a mandatory unit Each candidate must complete four mandatory and three optional units to achieve the full NVQ/SVQ award Additional units can be taken if desired 268 Appendix A3 Investigate the requirements of any legislation you have to comply with in setting up and running the business A3.1 Define the needs for setting up the business as a legal entity A3.2 Define the operational controls to ensure the business operates legally A3.3 Assess the impact of health and safety and associated legislation on the business operation A3.4 Assess and use sources of information and advice A4* Establish how you will finance the start-up and keep track of money once the business is operating A4.1 Assess the financial requirements to set up the business A4.2 Identify how the business will be funded A4.3 Provide financial forecasts and explain what financial controls you will use A4.4 Identify how you will measure financial performance A5 Develop a strategy for marketing and sales A5.1 Analyse the market for the products and services of the proposed business A5.2 Develop the marketing plan for the business A5.3 Develop the sales plan for the business A5.4 Specify how the success of the marketing and sales plans will be assessed 269 1111 1011 2011 3011 711 Business Planning 1111 1011 2011 3011 711 A6 Investigate ways to ensure that the business operates to quality standards A6.1 Assess the importance of a quality focus in the business A6.2 Identify ways to incorporate quality into all aspects of business performance A6.3 Define quality targets for the business A7 Establish a customer service policy A7.1 Assess customer needs A7.2 Develop a policy for procedures to meet customer needs A7.3 Specify how the policy will be put into practice and its effectiveness monitored A8 Assess the business needs for dedicated premises A8.1 Evaluate the business needs for premises A8.2 Select premises which meet the business need A8.3 Establish your business terms for negotiating and agreeing contracts for business premises A9 Assess the business need for physical resources A9.1 Identify the physical resources needed by the business A9.2 Evaluate supply options A9.3 Develop a schedule for obtaining and maintaining physical resources 270 Appendix A10 Assess the need for any additional personnel in the first years of trading A10.1 Identify the personnel needs of the business A10.2 Assess the impact on the business of employing staff A10.3 Develop a plan for recruitment, training, work allocation and performance appraisal A11* Develop a comprehensive business plan A11.1 Review the research you have carried out A11.2 Produce the business plan C12 Lead the work of teams and individuals MCI Standards for NVQ/SVQ Level Supervisory Management C12.1 Plan the work of teams and individuals C12.2 Assess the work of teams and individuals C12.3 Provide feedback to teams and individuals on their work D1 Manage information for action D1.1 Gather required information D1.2 Inform and advise others D1.3 Hold meetings The two MCI units are considered of potential use to new owner-managers who may be new to staff supervision, communicating with clients and staff, and running business meetings If appropriate, these units can be taken in addition to the ownermanager units 271 1111 1011 2011 3011 711 This Page Intentionally Left Blank Index Index Index Accounting ratios, 125, 137–8 Aged debtors analysis, 133–4 Appraisal of staff, 241–2 Barriers to market entry, 155–6 Bills of exchange, 150 Book-keeping, double-entry, 39, 64, 125–7 Break-even analysis, 27, 106–7, 109–11, 159 Budgetary control, 9, 28, 38–9, 41, 64, 112, 125, 128–9, 173–4 Budgets: planning and preparation, 25–6, 64, 106–7, 111–16, 173, 213–18, 245 Building Regulations, 84, 206 Business plans, 1–10, 12–42, 224–50 business idea, 3, 14, 44–6, defining objectives, 5, 193, 245 external influences, 57–61 format, 12–14, 224–50 implementation, key stages, 36–7, 248 implementation, potential delays, 47 importance and purpose, 1–3, 7–8 layout and content, 12–42 presentation, 248–9 Business skills, 3–5, 16, 19, 93, 61–5, 225–6 Business viability, 1, 16, 42, 247–8 Capital, 28, 142, 212 Cash flow, 106–7, 109, 116–19, 128–9, 141, 212, 247 Commercial bonds, 150 Commercial mortgages, 146–7 Companies Acts, 94 Consumer credit, 97 Contracts of Employment, 90–1, 224, 231–2 Contribution to fixed costs, 109–10, 159 Convertible loan stock, 150 Co-operatives, 55–6 Copyrights and patents, 96–7 Corporation tax, 52, 56 Credit control, 99, 116, 125, 128, 134–7 Creditors, 54, 116, 118, 222–3 Customers, 39–40, 188–97 care, 190–7, 228 expectations, 189, 194–7 needs, 155, 179, 188, 189 records, 39 retention, 40, 177, 185, 190–1 service, 64, 188–97 273 1111 1011 2011 3011 711 Index 1111 1011 2011 3011 711 Data protection, 87 Debentures, 146–7 Debtors, 116, 118, 121, 128, 133–4 Discipline procedures, 239–41 Discrimination, 100–3 Economic influences, 58, 60 Employer’s liability insurance, 91–2, 208 Employing staff, 224–32, 239–42 Environmental Health Acts, 82–3 Employment Acts, 88–9 Environmental influences, 61 Equal opportunities, 100 Expenditure forecasts, 113–14, 173 Factoring debts, 149 Finance, sources of, 6, 29, 140–52 Finance Acts, 92–5 Finance for business start-up, 6, 54, Financial controls, 125–39 Financial planning, 106–23, 159 Fixed costs, 109–10 Fixtures and fittings, 215–16 Franchises, 47 Grievance procedures, 241 Health and safety, 77–81, 227 Hire purchase, 148, 213 Income forecasts, 113 Income tax liabilities, 48–9, 50–3, 116 Income tax returns, 49, 53 Insolvency Act, 97–9, 136–7 Institute of Management, 14, 266–7 Insurance, 25, 198, 206–10, 216 accident or disability, 209 buildings, 206–7 buildings contents, 207 274 combined or shop-keepers, 210 employer’s liability, 91–2, 208 goods in transit, 207 health, 209 key persons, 209 loss of profits, 208–9 motor vehicle, 209 product liability, 208 professional indemnity, 208 public liability, 25, 208 stock, 207 Interviewing staff, 237–9 Job descriptions, 228–30, 235 Key personnel, 16–18, 24–5 Leasing, 149 Legislation, 36–8, 76–105 anti-discrimination, 100–3 employment, 87–92 environmental and trading, 82–7 financial and company, 92–100 health and safety, 77–81 Liability for business losses, 49, 51, 57, 96–9 Liability for property leases, 205 Life assurance, 210 Limited companies, 52–5, 98, 108, 142 Loans and overdrafts, 108, 113–14, 117–18, 121, 129, 141, 143–5, 152, 213 Management Charter Initiative (MCI) Standards, 254 Management skills, 67–8, 74 Mark-up, 125, 129–30 Marketing, 30–5, 153–74 competitors, 32, 155, 157–8 identifying potential markets, 16, 29–30, 56 Index market research, 3, 30, 154–9, 188 market segmentation, 3, 159–63 market share, 156–7 marketing mix, 162–8 marketing plans, 33, 162–7 pricing policy, 34, 158–9, 163 seasonal influences, 31, 113 Materials, 213, 219 Monitoring and control, 5–6, 9, 28, 175–87 National Insurance Contributions, 49, 55–6, NVQs/SVQs, 251–71 assessment, 251–2, 256–62, 265 NVQ3 Business Planning, 12, 14, 44, 63, 77, 106, 125, 140, 154, 175, 188, 198, 211, 225, 244–50, 258–60 NVQ3 Supervisory Management, 255–7 Office equipment and furniture, 212, 216–17 Operating status, 15, 36, 47, Overhead costs, 109–10, 245–6 PAYE, 49–50, 55–6, 70 Partnership Act, 50, 95–6 Partnerships, 50–2, 96, 108, 142 Pensions, 210 Person specifications, 230, 235 Personal goals and objectives, 71–2 Personal survival budget, 107–9 Planning consent, 83, 200, 204, 206 Plant and equipment, 216 Political influences, 57 Power torch, 69 Premises, 23, 198–206 freehold, 47, 203–4 leasehold, 204–5 location of, 198–200 rented, 205 size of, 201–3 Prioritizing work, 69–70, 74 Profit and loss forecast, 107–8, 120–4 Profit margins, 125, 129–30, 132 Quality, 175–87 control, 163 standards, 35, 41, 175–6, 178, 194–6 systems, 175–83, 193–7 Recruiting and selecting staff, 226–39 Registrar of Companies, 96 Resource requirements, 21–2, 211–23 Sale of Goods Act, 85–6 Sales plans, 168–70, 172–3 Sales revenue, 106, 172–3 Sales skills, 153–4, 171–2 Self-assessment, 63–74 Share capital, 145–6 Skills development, action plans, 63, 67, 72–4 Skills gap analysis, 20–1, 63, 65–72 Small Firms Enterprise Development Initiative (SFEDI), 5, 254 Social trends, 58–9 Sole traders, 48–9, 96, 108, 142 Stock control, 125, 128, 130–3, 212–13, 218–19 Supplier relationships, 222–3 SWOT analysis, 66 Technological change, 59 Trading Standards, 85–6 Transport, 23–4 209, 212, 214–15 Unfair dismissal, 241 Utilities, 219–22 275 1111 1011 2011 3011 711 Index 1111 1011 2011 3011 711 Value Added Tax, 48–9, 51, 56, 70, 92, 113, 117, 126, 147 Variable costs, 109–10 Venture capital, 147 Working capital, 109, 117–18, 141, 212 Working Hours Directive, 60, 89, 224 This Page Intentionally Left Blank This Page Intentionally Left Blank ... publication should be addressed to the publishers British Library Cataloguing in Publication Data Butler, David Business planning: a guide to business start- up New business enterprises – Planning Business. . .Business Planning 1111 1011 2011 3011 711 1111 1011 2011 3011 711 This Page Intentionally Left Blank Business Planning A guide to business start- up David Butler OXFORD AUCKLAND BOSTON JOHANNESBURG... studies, assessment of potential sales turnover and profit margins, breakeven analysis, availability of regular supplies, availability of competent staff, adequate working capital etc Again, our