Business Plans: A Handbook for Students PDF

All you need to know about BUSINESS PLANS A HANDBOOK FOR STUDENTS BY: Dr Simone Slabbert 1  Table of Contents A. INTRODUCTION: 4 1....

All you need to know about BUSINESS PLANS A HANDBOOK FOR STUDENTS BY: Dr Simone Slabbert 1  Table of Contents A. INTRODUCTION: 4 1. Reality Check - What can you actually do? 4 2. The Template – How do you put it all together? 4 3. Syndication - share the workload and get feedback 5 4. Time Management - Make a plan and follow it 5 B. THERE ARE 4 MAIN STEPS: 6 1. Business Plan Outline Writing 6 2. Fill out Core Sections of the Business Plan First 6 3. Complete the Minor Sections & supporting documents and finish the draft 8 4. Convert Draft to Final Product 9 C. BUSINESS PLAN KEY REQUIREMENTS TEMPLATE 10 1. SECTION ONE - The Executive Summary 10 i. Summarise - Capture Their Attention Immediately 10 ii. The basic format of a concise Executive Summary: 10 iii. The Mission Statement 11 iv. A Vision Statement 12 v. SMART goals 12 2. SECTION TWO - The Market Analysis 14 i. Go from general to specific 14 ii. Analyse Market Factors 15 iii. Market research covers various aspects 16 iv. Survey Results 17 v. The SWOT Analysis 17 vi. The Strategies 20 vii. Regulatory restrictions on the Market: 23 3. SECTION THREE - The Entity Description 24 i. The business model. 24 ii. Your values and culture proposition 25 iii. The legal and 25 iv. Your Unique Strategic Position or competitive advantage 26 2  4. SECTION FOUR - The Organization & Management Plan 27 i. The Overall Organizational Design - People 27 ii. Make it Clear You’ve Assembled the Perfect Management Team 28 iii. Major Risks (internal) 29 5. SECTION FIVE - The Marketing and Sales Strategies 30 i. Who are your customers? 30 ii. What are the needs of your customers? 31 iii. How do you fulfil their need – The 4 P’s of the Marketing Mix? 31 6. SECTION SIX - Service (product) offering 38 i. What's Included in the Products/Services Section: 38 7. SECTION SEVEN - Funding & Financial Section 40 i. How much money do I need, and where will I get it? 40 ii. How much is my company worth – making some assumptions? 42 iii. Required output items in the Financial Section 42 8. Business Plan Practicalities (Appendix): 64 i. Part A: Business Plan items 64 ii. Part B: General items 66 D. GENERAL TIPS: 67 i. Too little sound research: 67 ii. Overcomplicated or illogical plans 67 iii. Don’t understand how your potential investors think 68 E. RECAP: 69 i. SECTION A: Written Business plan 69 ii. SECTION B: Teamwork 71 iii. SECTION C: The Presentation: 72 iv. SECTION D: Panel Questions: 72 F. FREQUENTLY ASKED QUESTIONS AND ANSWERS: 73 i. How long does my business plan have to be? 73 ii. What needs to be in my business plan? 74 3  A. INTRODUCTION: The business plan must be based on a logical, realistic idea for an entity. The submission must be a full document that communicates what market research was done to see if the idea is viable and desirable in that market, how you analysed all the factors involved and decided on an organisational fit, explain in detail what your business is about and how you propose to go about it operationally, what your mission and long term vision is for the entity, and what financial considerations there are. To have a starting point when writing your business plan, take account of the following: 1. Reality Check - What can you actually do? You think you have an incredible idea that will translate into a multi-million-dollar business empire or unique church initiative. You have constructed a mental picture of the systems, how you see it working, what you need, how you will provide the services or deliver the products and how you will make millions or plant a mega-church or affiliated entity. However, while it is essential to know what you need, you have to analyse what you can actually do and what the market of intended users want. Do you have access to good resources? Can you gain access to them? Do you have a good management team? Has the management team achieved great success in the past? Are there really customers interested in your product? Is this a growing market? Are there any barriers to entry that can become a problem, or can you set barriers of entry so you can maintain your position in the long term? Put it all down on paper. That is the purpose of a business plan. What you want to achieve and what you need, well mapped out and backed by sound market research. After doing this, you can see if you are really capable of starting and sustaining the business and achieving success. 2. The Template – How do you put it all together? You are still learning how to write a business plan. There are a few templates that you can find online. However, for academic and grading purposes, CFCI Bible College provides all students with the ONLY standard template to use. (see “Syndicate Group Key Requirement Outline”). This template or a structure is there for you to organize your ideas and information to present it logically and obtain maximum results. It also contains all the essential elements for a standard business plan like the Executive Summary, Market Analysis, Industry Analysis, Customer Analysis, Competitive Analysis, Marketing Plan, Operations Plan, Resource Plan, Financial Plan, Appendix and even more. You should not deviate from this basic structure, as you want investors/interested persons to find whatever piece of information they are looking for, so fill out these sections in this order with what you know about each. 4 The structure contains critical headings and subheadings to allow you to fill it in correctly and completely. Please make sure ONLY this format or template is used, or the grades will be affected. 3. Syndication - share the workload and get feedback As you group yourself into syndicates, try to surround yourself with people with specialised knowledge, e.g., someone with a financial background, as the finance section is critical. Sharing the workload among 5 or 6 syndicate members is vital as the assignment is too large for a single person to cover all the aspects required successfully. Feedback is essential, as is someone with experience to guide you. Consult your faculty and past third-year graduates who can guide you and give you feedback and suitable suggestions. The curriculum is designed to offer all third-year groups “pre-present” time slots so that you can practice and get feedback from the faculty. There are also allocated “BP workshop sessions” so that the groups can work together in class time, under the supervision of the faculty, to ask for help or direction. The idea is not as important as your ability to execute it. Get some opinions from your friends, family, associates or mentors. More often than not, they will come up with new ideas and point out mistakes, which will help you develop a better business plan. In the corporate world, you would find educated people who can assess your business plan and send a copy to them. However, you would choose them wisely and would only be people you trust completely and are unlikely to steal the idea. 4. Time Management - Make a plan and follow it Set a schedule and follow it strictly. Writing the business plan is a hefty task and can take longer. The most ambitious entrepreneurs have finished their business plan in less than two weeks by working only on the business plan for eight hours a day, five days a week. This is not practical during part-time studies, so work on it immediately and consistently. The essential rule is to follow a set schedule for the initial research, subsequent meetings and then the writing up of the actual plan. The next step when writing the plan is to follow the template provided. The first thing you must do is remember to keep it simple, and sticking precisely to the key outputs template provided, will make your life simple. While a business plan requires many small steps, the template allows you to fill in the information in the right place. 5  B. THERE ARE 4 MAIN STEPS: Follow the template outline first, fill in the main areas, then all the minor portions and then take it from rough draft to final draft. When it comes to a business plan, this is a very simple approach - four easy steps. This perspective takes the pressure off so you can write a great report and get the funds or approval or grades you require. 1. Business Plan Outline Writing There are 8 main headings or sections in the business plan. These include the executive summary, market analysis (incl. the industry analysis, customer analysis, competitive analysis) and the SWOT, your entity functional and legal description, your organisation and management plan, marketing and sales plan, the actual operations plan or service plan, the financial plan and of course an appendix of all supporting documents. Buy yourself 2 lever arch files and index dividers for each file. Label each of the first seven sections of the main business plan in the first lever arch file and use the second lever arch file for your Appendix of Practicalities (with its subheadings). Once you start typing, you will be able to place the various correct portions in each section, being careful not to leave out any subsection required as each carries a weight towards a grade. Now start a fresh WORD document on your PC or laptop for each of the same headings and all of the subheadings. Subheadings are the main questions or points to be answered or covered in each heading. 2. Fill out Core Sections of the Business Plan First At the core of your business plan is the market analysis so start by working out what questions should be asked that will address the following areas:  Market (or customer) analysis (do they want what you are planning on offering)  Competitive analysis (are others already in the market and will be competition)  Company overview (do they have other needs that you may need to consider and does your entity design match the need) Finally, add the  Industry analysis (research the industry you will be launching into and find out trends, regulatory or other restrictions etc. Most of the research you will need to do is for competitive analysis, customer analysis and industry analysis sections of your plan. Find and utilize reliable sources, those trusted by your industry, to unearth trends, market facts and statistics. Research can be done by investigating similar companies in the market, the location (place) being earmarked or the service/product being considered. 6 Questionnaires given to possible customers are also very popular as they can cover various aspects being considered. For your financial plan, operations plan and marketing plan sections, you should research available labour pool, potential locations, and start-up and operating costs in your niche. Your own company will be subject to research, including required and existing labour for your company analysis section. When research is complete, you will determine the wisdom of going on with your business plan. You might discover that your business has no market and scrap it altogether or make changes to make your offering more viable. On the other hand, if you find a potential market, make sure you map all revenue streams from this market to your company coffers. This information will be placed in the marketing plan section later on and in the financial section. This information should allow you to populate your SWOT analysis and then think of good strategies to mitigate weaknesses or threats or leverage strategies that upsell your strengths and weaknesses. Now look at all the other required sections (and subsections), and using the market analyses, formulate a plan that best matches what the market needs and what you can realistically offer. Remember that your mission statement defines what you can realistically achieve in the now. The vision statement says if you do that consistently well, the long term vision is the ultimate goal. In your organisational and managerial design, decide on what type of legal entity you and the board or team should operate under, allocate human resources with matching job description roles and CV’s that indicate the allocated personnel can do what is required. Describe good governance boards and processes and be honest about internal company risk factors, e.g. you need a child psychologist, but as yet have none, so a risk is that, to be successful, you need to outsource one, most likely at an additional cost. Now, having the operational idea and the people to execute it, you need to introduce your product or entity to the market you identified. This is where your marketing and sales strategies come into play. The five P’s need to be expanded on, and then you need to determine the best market penetration strategy to launch. Keep in mind that many of these things have a cost or price element, so do not make statements that imply money is involved (income or expenditure) and then not reflect it in the financial section. The Funding and Financial section is the crux of the matter. Any initiative that needs to put down a budget and some financial forecasting spreadsheets need to outline all the assumptions that frame the calculations. This is especially so when certain aspects are not yet 100% defined or clear. Perhaps the best guess is how many units will be made/sold in month one, or perhaps the number of members/students for a church initiative is still uncertain. 7 Use your research to guide you on what feasible numbers could be and state these elements in the assumptions. Assumptions cover income and expenditure matters and, if stated up front, guide the reader as to how your logical financial thinking is taking place. It is also essential to consider that no plan starts on day one of launch – it starts months before with:  Fundraising initiatives and utilisation (these must be fully costed and a break-even analysis done to prove they do make a profit)  Marketing resources, e.g. banners, signage, advertising etc. (as discussed in your market penetration strategy)  A proposed budget for the “pre-launch” phase plus the first year of operations. After that, specific key financial reports must be prepared to demonstrate cash flow, income statements, balance sheets and capital expenditure. This is the most scrutinized area of your business plan. Revenues, costs and activities must be clearly stated in accounting terms and be defined by time lines and proposed expenditure plans. Do not forget expenses relating to the initial set-up costs that often happen some months before the entity is established and starts to generate income. This creates the very important pro forma or projected financial statement. A spreadsheet program with a financial template is a good idea for this section. Unless you are an accountant yourself, you may want to consult a professional. 3. Complete the Minor Sections & supporting documents and finish the draft Last but not least, now you write the Executive Summary. (See the section on this later in the notes to see exactly what should be covered in this section). The executive summary should be written last when you have almost finished and have the best feel for the business and cover the highlights of the entire plan, hereby urging investors to read the rest of your business plan. Now move your summary to the front of the document and tack on your appendix (section 8: Practicalities), which is where you will support all the claims in your plan and include formal/legal documents and even your research questionnaires. At this point, you have a much better understanding of your proposed entity, and to really show you based all your ideas on sound elements, populate the second file with all the required supporting documents. 8 The appendix or “Practicalities of Starting a Ministry/Entity” file has clear subheadings that cross-reference to sections in the main plan. If you use the sub sections and the correlated numbering, you can even refer to these directly in your main business plan e.g. In the marketing section, you could say “see section 8.11 for all promotional material”; or in the finance section, you could cross-reference to “section 8.12 for all quotations”. The General Practicalities section in this file refers to all the meeting minutes held and provides the copies of the surveys done and a few other items, including a bibliography (to provide author or source credit to books, sites etc., that were used in the research.) 4. Convert Draft to Final Product The team leader should now get all the various sections from the team members and put together the first draft. Every member should review it, looking out for inconsistencies or inaccuracies in calculations, spelling errors and compliance to the CFCIBC template. Keep up with the changes in the document by using the "track changes" function. This may sound inefficient, but actually, it is very efficient. You will avoid doubling up on suggestions and tracking each change one at a time. When you finally get the draft back, you can decide to accept or decline each change, keeping in mind that you are working toward one final fully corrected perfect version. Version control is critical!! If you have managed your time well, you may even be able to book a pre-present with your faculty and then make any changes or corrections they suggest in the feedback. You will also need to format your business plan and ensure each section begins on a new page. It should also include a table of contents in the front of each file, professionally printed sub section dividers, page numbers, etc. Borders and page headers that contain your company logo and name can also be a part of your formatting. You could also include info graphics, call-out boxes, and pertinent images to round out the business plan. Now submit your documents in the manner required in your Student Assignment Pack and note that a copy of the presentation slides DOES NOT constitute a Business Plan! Please also make sure to submit in time. 9  C. BUSINESS PLAN KEY REQUIREMENTS TEMPLATE The CFCIBC Business Plan Key Requirements Outline (Template) is the only acceptable format for this academic exercise to present the Business Plan. There are 8 sections, and they must be provided in the order prescribed. The following tips apply to the individual 8 sections. 1. SECTION ONE - The Executive Summary i. Summarise - Capture Their Attention Immediately You only get one minute to capture the attention of your business plan’s readers. That’s how long potential investors typically spend reading the first page of any company’s business plan. After that minute, your potential investors will either keep reading or start looking around for the next possible investment. The first page of your Executive Summary must use that initial minute to great advantage. The Executive Summary might be the last part of the business plan you write, but it represents your only chance of hooking your readers and getting them to swallow the bait. Your Executive Summary must contain the most compelling aspects of your business plan. It should also describe your company’s product or service, the precise market you are targeting and pertinent details about your management team’s background. To ensure that your Executive Summary delivers a quick knockout punch, you will need to simplify some of the points you make in the main body of your business plan. That is fine because the purpose of the Executive Summary is just to sink the hook into investors. They can read through the details in the main body of your business plan. ii. The basic format of a concise Executive Summary: 10   The problem or proposal Provide the name of the business or entity and the main need or problem it plans to solve for a target market, a brief description of what type of business it is, where it will be located and relevant insights into the industry – THE WHY  Background information A brief description of your entity and how it is geared to be successful, a brief operational model with some of the core services or products mentioned, the proposed starting date and an overview of management alignment/competence (business structure) – THE HOW  A concise analysis A brief description of the forecast projections, funding analysis, and investment needs leads to a clear mission and vision statement. – the VISION & MISSION statements.  Main Conclusions This is all pulled together in a set of clear and concise goals with timelines and measurable outcomes you wish to achieve – the SMART GOALS Please note that the Executive Summary is a short section of no more than 3-4 pages! Knowing the difference between a Mission Statement and a Vision Statement and then crafting your own is a vital step. Both are short sharp, and to the point. A long-winded mission or vision statement is not acceptable. iii. The Mission Statement This describes the CURRENT steps or things an entity does that epitomises why you exist and what you do. It is like a road map of how to achieve the goals you set in the vision statement and, therefore, defines the entity's purpose. The figures below illustrate this concept and provide an example 11  iv. A Vision Statement This describes the future state or benefits you wish to achieve by doing the mission aspects. These are the long-term objectives, usually for a five-year time frame. The figure below illustrates this concept. v. SMART goals The next vital component is framing your SMART goals. Let us refresh what the acronym stands for. The illustrations below are good summaries and provide some “do’s” and “don’ts”. 12 So, in essence, the goal statements must encompass ALL these elements. Do not provide a statement for “S” and then “M” and then “A”, etc. The smart goal statements are a set of phrases that indicate specific relevant goals that can be measured as to successfulness and are realistic and achievable by a specific period…..all in one statement per goal. The illustration below can help you see these aspects and even a professional way to indicate the periods of 1 year, 2 years or 3 years. The following illustrates how a good goal can become a SMART goal by adding some specific how’s that can be measured, and some time frames:  Good goal: XYZ will educate staff, students and parents about the new COVID legislation and implications on education practices at the school.  A SMART goal statement: XYZ will educate staff, students and parents about the new COVID legislation on education practices at the school by sending out formal newsletters at the end of each term, posting the information and regular updates on the student portals each month, and inviting students and their parents to request discussion meetings to resolve concerns whenever needed. Here are some more examples of SMART goal statements:  Increase weekly church volunteer participation by 10% (from 100 to 110) by December 20xx.  Establish volunteer leadership training and train 75% of volunteers by October 20xx.  Raise R10 000 (10% of the expenses budget) through fundraising initiatives before mid-year of 20xx.  Reduce the operating budget expenses by 10% (R100 000 to R90 000) by June 20xx.  Increase weekly attendance 20% (500 to 600) by December 20xx. 13 2. SECTION TWO - The Market Analysis The market you are targeting with your product or service means the actual number of people you can get to. You have to prove how you came up with this number and that you are placing your entity or idea in the right place among the right target market audience of users. Before you can simply roll out the idea from concept to operations, you have to research the market and establish what the needs are, what the fit between your concept and their wants may be, what risks there are to success and especially establish what they need or want. The market survey that you prepare must be carefully constructed to find out all these various aspects that guide your plan and its success in the future. Make sure they question factors like relevant demographic factors and primarily address psychographics that relates to your product. Psychographics are the attitudes, interests, needs, values, opinions, and lifestyles of your target market.... Demographic data relates to the structure of a population—factors like age, race, sex, and income. Do not ask irrelevant questions, and do not ask questions where you ask the people what they would like to pay. No business determines market price by asking the customers – everyone will give either the lowest price or you will have hundreds of different points of view (none of which relate you your operating costs or price calculations.) Once you have researched the prospective market and possible “customers’, you will want to ask if your marker is sustainable. Will your entity be able to grow? In business terms, this would be called “growing your market share” or the potential “growth rate”. Even a ministerial entity will want to demonstrate its chances to grow and its possible growth rate per annum. You can prove the growth rate and the size of the market in two ways. If you follow these steps, you will gain valuable knowledge that will influence your business plan. i. Go from general to specific Use a process of elimination to determine the size of the market. Determine which part is relevant to your entity. Rule out the parts of the market you will not address i.e. perhaps a specific age group or perhaps a specific need that you are not operationally geared for. You cannot be all things to all people in the market and must start with those needs you can successfully fulfil. You can add new projects or services to address some of the needs, but you cannot be all things to all people to launch. 14 Use the survey results that you analyse to guide what you can offer to the target market and from there project what you could add in future to stimulate growth. Don't ignore market research. For example, if you produce sandals, your potential market is just about anyone who likes sandals. But you want to clearly define what kind of sandals would sell best and result in the most growth, so go from a general view to a specific view by ensuring that the questions on the market survey clearly ask what kind of sandals do people want and what extras would they like to have too. Sometimes you have to be hard and take note that you cannot serve all segments and needs in that market. Perhaps you need to eliminate the low-income segment first, who cannot afford the sandals. You can then mentally remove people who have never bought sandals before or indicated they never will. Eliminate those who already use other products. In the case of a ministry entity – those who already attend another church. What you have in the end is the exact profile of the target market you could count on. Include what you found out in the Customer Analysis. ii. Analyse Market Factors Determine what will influence your target market and look at the research you did in the following areas:  Competition Can the competition steal customers? How many? If they succeed, they will steal a big part of the pie and that is a fact you should also include in the Competitive Analysis, even if it sounds bad. Investors are not looking for utopia scenarios.  Customers Discuss the findings of your survey and put down all the factors that play into your strengths but can also identify your weaknesses. Present your findings using demographics and psychographics factors, both in graphs or pie charts etc., as well as in word format. You want to know things about the prospective target market that influence whether they will use, participate or buy what you are selling. How much do they earn? What different cultures or languages are you dealing with, what age groups do you have in the market and will that influence buy-in? What exposure have they had to your type of service or product? What do they want or need?  Market Trends Can different laws affect your business? Sometimes these are not laws of the country but local municipality laws about parking or access etc. Sometimes these are laws that pertain to a particular industry e.g. child care laws for schools or daycare centres. Ask 15 yourself if the market could shift or change? Can material pricing and access to resources influence your business?  Use Case Studies Give examples of other companies or entities that have made it in a similar field and with a similar plan. Maybe even with the same target market. Include this in the Competitive Analysis and Industry Analysis. iii. Market research covers various aspects  Customer Analysis: This section will list your customers and what the research indicated was their needs. Prove that you are knowledgeable about your customers and that you know more about them than your competitors. This is where you would list information about specific market trend numbers, demographics, psychographics and anything else of importance about your customers.  Industry Analysis: This says that you have thoroughly researched your target market and the type of industry it falls into. Churches fall into a Theological or Ministerial Industry with unique aspects and parameters to consider. Bible Colleges fall into both a Ministerial and an academic domain. This analysis might include a lot of overlapping of industries and competitors. This is where you should place complete industry statistics from credible resources, as well as market-specific trends.  Competitive Analysis: This section will prove that you are knowledgeable about your competitors. Your competitors are not just the ones that you see out in the open. Your actual competitors are the ones that your customers can go to to get the same things that your company supplies. This could consist of things that the customer does as well. Make sure that you list both the strengths and weaknesses of your competition. Be truthful and unbiased.  Company Analysis: This is where you prominently place all company milestones and achievements. This section displays a time-stamped list of items that prove the proficiency of your company and management team in both past and present situations. 16  In addition, this section should also be utilized to discuss things such as proprietary technology, which would be viewed as the company’s unfair competitive advantage. iv. Survey Results Do not forget to include graphs and graphical analysis of your survey results. Every question should be analysed and presented as a graph or table etc, so indicate your research findings. The narrative should clearly state the customer needs and findings of your target market research. v. The SWOT Analysis A key component to market analysis is to do a SWOT analysis and use it to draw up good marketing and defensive strategies. The SWOT is the acronym for analysing Strengths, Weaknesses, Opportunities, and Threats and is an effective tool for developing an overall marketing strategy or planning individual campaigns. The best way to place the correct information in the correct section is to consider whether it is HELPFUL OR HARMFUL and ask if it is INTERNAL or EXTERNAL to your entity. If it is HELPFUL and INTERNAL = STRENGTH If it is HELPFUL and EXTERNAL = OPPORTUNITY If it is HARMFUL and INTERNAL = WEAKNESS If it is HARMFUL and EXTERNAL = THREAT See the illustration that demonstrates this. The following illustrations give a list of questions you can be asking in each quadrant so that you can populate your SWOT analysis. 17 A simple checklist of questions you should be thinking about will help you populate the various quadrants of the SWOT analysis, which will lead to strategies and action steps your entity needs to take. 18 There are many ways to present the SWOT details. Here are a few that could be used as they are clear and precise and capture the reader's attention. They can range from simple, neat and altogether business-like, all the way to very creative and eye-catching. The following example is of a College SWOT Analysis. Note the creativity and appealing look even though the SWOT is defined more by INTERNAL vs EXTERNAL factors. 19 The following is an excellent example of a church SWOT analysis using a lateral design (items are placed next to each other). The final illustration shows just how creative you can be, but more than anything, remember the content must be accurate and in the right quadrant vi. The Strategies The analysis does not stop there. The main reason you do a SWOT analysis is to establish and plan the STRATEGIES you will implement. Some will be specifically designed to leverage the strengths and opportunities, and others will counter or mitigate the risks or weaknesses. 20 To ensure that the strategies are directly linked to the applicable SWOT element, number the items i.e. S1, S2 (Strength 1 and Strength 2); W1, W2 (Weakness 1 and Weakness 2); O1 and O2 (Opportunity 1 and Opportunity 2); and T1, T2 (Threat 1 and Threat 2) etc. When providing a strategy, cross-reference it to the correct element, you are mitigating or leveraging The illustration below is a good example of numbered SWOT elements cross-referenced into the various strategies proposed. 21 The illustration below clearly shows the different kinds of strategies used and a numbering system for the SWOT elements. Fundamentally, the reason for presenting information about your entity in a SWOT analysis is to present critical factors that impact success, alongside strategies that will leverage the good points or mitigate and correct the weaknesses or threats. The manual has much more on this topic, but there are types of strategies that can be used for different things. There are:  Attack strategies These maximise opportunities. We ask how we can use our strengths to take advantage of our opportunities. = ATTACK / SUCCESS APPROACH.  Building strengths for attacking strategies These counter weaknesses through exploiting opportunities. Ask how you can take advantage of opportunities to correct your weaknesses? = REINFORCE / ADAPTATION APPROACH  Defensive strategies These leverage your entities strengths to minimise threats. We ask how we can use our strengths to mitigate threats. = DEFEND / REACTION APPROACH.  Build strengths for defensive strategies These counter weaknesses and threats. Ask how you can stand your ground even with the threats seen? = RETREAT / SURVIVAL APPROACH. 22 As a picture says more than a thousand words… what better than an infographic: vii. Regulatory restrictions on the Market: Before we close this section, research and consider any regulatory restrictions in the market, including country-specific legislation and municipal regulations that may affect your operations. Consider unique rules that influence certain specialised sectors, e.g. child care, frail care, orphanages, etc. 23 3. SECTION THREE - The Entity Description This section of your business plan is an overview of your business or entity and should answer these fundamental questions:  Who are you, what do you plan to do, and where – your business model?  What is your culture and the values of the business?  What is your legal and ownership structure?  What is your unique or competitive advantage? Answering these questions introduces why you are in business, how you are structured legally (company registration) and why you are different, what you have going for you (your competitive advantage), and why you are a good investment bet. Clarifying these details is a valuable exercise, even if you are the only person to see them. It is an opportunity to put to paper some of the more intangible facets of your business, like your principles, ideals, and cultural philosophies. Some of these points are statements of fact, but others will require a bit more thought to define, especially when it comes to your business’s vision, mission, and values. This is where you start getting to the core of why your business exists, what you hope to accomplish, and what you stand for. Here are some of the components you should include in your company overview: i. The business model. This describes what specific markets or segments a company chooses to serve, domestically or abroad, what methods of distribution it uses to reach its customers, and how it promotes and advertises its value proposition to its target customers. Your Business Model should consist of these 4 key aspects.  Background information on your business. Provide a brief overview of the business, its history or a description of your industry sector.  Your Target Audiences. Defining who (and where) you will serve with your product or service offering is the first core element of your business model. Understand your ideal customer profile, especially as it relates to demographics. Your ideal customer, also known as your target market, is the foundation of your marketing plan, if not your business plan as a whole. You will want to keep this person in mind as you make strategic decisions, which is why an overview of who they are is essential to understand and include in your plan. 24  For example, if you are targeting millennial churchgoers, you can describe research data about the size of that group. You also could look at projected changes to the number of people in your target age range over the next few years. Discuss whether your general industry is projected to grow or decline over the next few years (trends). You will never have perfect, complete information about the size of your total addressable market. Your goal is to base your estimates on as many verifiable data points as necessary for a confident guess.  Your Market Offering. In a nutshell, what you are offering and what you will do operationally. Your business’s vision and mission statement can be repeated here as well as your business objectives, both short and long term (Smart Goals given in the Executive Summary) Once you know your values, you can pen a mission statement. Convincingly, your statement should explain what you do and why your business exists and should be no longer than a single sentence. It’s the “why” behind everything we do and clear enough that it needs no further explanation. (see also earlier notes) Next, craft your vision statement: what impact do you envision your business having on the world once you have achieved your mission? Phrase this impact as an assertion—begin the statement with “We will”, and you will be off to a great start. Your vision statement, unlike your mission statement, can be longer than a single sentence, but try to keep it to three at most. The best vision statements are concise. ii. Your values and culture proposition. Your Essence. To define your values, think about all the people your company is accountable to, including owners, employees, suppliers, customers, and investors. Now consider how you would like to conduct business with each of them. As you make a list, your core values should start to emerge. Religious institutions may convert this into their Statement of Faith and non- religious entities into a Value Proposition Statement. iii. The legal and business structure Are you a sole proprietorship, general partnership, limited partnership, or incorporated company? Are you registered as a NPO or PBO? Make sure to place supporting applications or documents in the Practicalities file. Detail the legal structure of your business in this step of how to create a business plan. Communicate whether you will incorporate your business as a corporation or create a limited partnership or sole proprietorship. 25 iv. Your Unique Strategic Position or competitive advantage There are three overarching factors you can use to differentiate your business in the face of competition:  Cost leadership. You have the capacity to maximize profits or numbers by offering lower prices than the majority of your competitors.  Differentiation. Your product or service offers something distinct from the current leaders or others in your industry and banks on standing out based on your uniqueness.  Segmentation. You focus on a specific or niche target market and build traction with a smaller audience before moving on to a broader market. To understand which the best fit is, you will need to understand your business and the competitive landscape. You will always have competition in the market, even with an innovative product, so it is essential to include a competitive overview in your business plan. If you are entering an established market, include a list of a few companies you consider direct competitors and explain how you plan to differentiate your products and business from theirs. 26 4. SECTION FOUR - The Organization & Management Plan The management and organization section of your business plan should tell readers about who is running your company. It is vital as it sets the investor’s mind at ease that the right personnel are employed to the right positions and job descriptions. i. The Overall Organizational Design - People Use an organizational chart to show your company’s internal structure, including the roles, responsibilities, and relationships between people in your chart. Communicate how each person will contribute to the success of your start-up. The illustration below indicates a basic organogram that can be used for the various management teams/boards and the overall business design. Each position should have the incumbent name and title as well.  Job Descriptions & CV’s Then provide a job description for each key position and what management teams or boards this person may also sit on (e.g. leadership and finance board). An accompanying short CV of each key candidate should also be provided in this section. An organizational structure defines how activities such as task allocation, coordination, and supervision are directed toward achieving organizational aims. The organizational structure affects organizational action and provides the foundation on which standard operating procedures and routines rest. 27  ii. Make it Clear You’ve Assembled the Perfect Management Team Naturally, experience is important, but your management team’s experience must be relevant, too. Its members should all be superbly qualified to supervise your company’s daily and long-range operations. Your business plan’s Company Analysis, Operations Plan and Management Team sections will address these issues. Potential investors will view your management team as qualified if its members are experienced at starting up and managing young companies successfully. Each team member must be experienced in his or her designated position within your company. Your management team will also be viewed more favourably if they have worked with well-known brands. If you have not yet assembled your complete team, clearly describe how and when you will select and hire the appropriate people.  Can they bet on the “Jockey”? The old saying “Bet on the jockey, not the horse” is very true when it comes to venture capitalism, seeking angel investors and commercial lending. As a part of your extended management team, your board of directors can also hold the position of “jockey”. Your investors will want to know all about them as well. Let the investors know how they help with strategic planning and making connections. Simply put, it means that investors will put more faith in the investees (business team) than the actual business concept when making investments. While it is crucial to have a fantastic product or service, a target market, factual information, solid advertising and plans for operations, but anaemic horses will still lose the race. However, if you cannot make investors and lenders think that your management team, or the jockey, is capable of taking your business to the next level, then you surely will not get the capital you want. You have to push the investors into trusting your management team.  Biographies of Management Teams & Boards When you write a business plan or plan to woo investors, make sure that you highlight the biographies of the people on your management team. Investors put faith in people that are:  successful at the beginning and maturing companies  experienced in the same types of positions they fill within your business  experienced in the same markets in which your company is a part of  able to use the resources and connections that can build your business  known for having reputable backgrounds within their industry 28 iii. Major Risks (internal) If there are gaps within your management team, then you must clarify things with the investors and talk about them in the “major risks within the organisation” section. Explain:  the positions that need to be filled  why the unfilled positions are needed in order to guarantee the smooth flow of daily operations and continued company growth  what needs to be done to fill these positions This will help you get these positions filled and gain the trust of the investors you are pursuing because it indicates you are not blind to your shortcoming and have action steps to correct them. It indicates that you know about the issues your company is experiencing, but you are willing to accept these challenges while making your company successful. Understanding all the major risks within the organization are important, as some of them can sink the entity. For example, if a COO or Director lacks sufficient financial knowledge to maintain oversight and control, a financial person could easily swindle money or distort the figures. Alternatively, if only one person has sole signing power over expenses. This is a risk as overspending, or incorrect spending can take place that does not align with the entity’s budget. Think about these internal aspects that could trip up the success of the business so that you can address them.  Governance Processes These are risks, and therefore, governance processes and countermeasures must be put in place. In this section, it is necessary to indicate who your Finance and Management Boards are, and outline specific policies and procedures that mitigate the risk of mismanagement, and establish proper financial controls. 29 5. SECTION FIVE - The Marketing and Sales Strategies Before starting to write an effective Marketing Mix Plan, stop and ask yourself three questions. The first two are connected to the info you get from the market research, which will be included in your Business Plan in the Customer Analysis section. The third question will follow up naturally and will be reflected in the Marketing Mix Plan. Answer these questions, and you can honestly state you are on the right track. i. Who are your customers? Finish the market research. Analyse both your own research and that of accredited research institutions. Find out exactly what your customers buy, how much they earn, the number of their cars, their location and lifestyle, if they have a car, what is their profession and any other data you can find out. More info means better results. Just then, you can really assess your target market and give a proper estimate. Real hard data is essential for investors.  Customer segmentation Your ideal customer, also known as your target market, is the foundation of your marketing plan, if not your business plan as a whole. You will want to keep this person in mind as you make strategic decisions, which is why an overview of who they are is important to understand and include in your plan. To give a holistic overview of your ideal customer, describe several general and specific demographic characteristics. Customer segmentation often includes:  Where they live  Their age range  Their level of education  Some common behaviour patterns  How they spend their free time  Where they work  What technology do they use  How much they earn  Where they are employed (or not)  Their values, beliefs, or opinions This information will vary based on what you are selling. However, it would be best if you were specific enough that it is unquestionably clear whom you’re trying to reach— and more importantly, why you have made the choices you have based on who your customers are and what they value. 30  ii. What are the needs of your customers? Through market research, find out what are the needs of your customers. There is a specific way to do this. You can make suppositions by analysing the products and services they bought to fulfil the need your venture fulfils. Consult research that can tell you if customers will ever purchase a product similar to yours. Use the newly got info to conclude how many people will replace the product they are now buying with your product if they had the chance. iii. How do you fulfil their need – The 4 P’s of the Marketing Mix? You must be active in making contact with potential customers and encourage them to reach out to you. Your Marketing Plan will help you do this. The info and knowledge you got while creating the Customer Analysis will help you directly reach potential customers. This way, you can build an effective marketing strategy, which will be your primary weapon in conquering the market. This is called the marketing mix. Your ideal customer directly informs your marketing efforts. Your plan should outline your current decisions and your future strategy, focusing on how your ideas are a fit for that ideal customer. If you’re planning to invest heavily in Instagram marketing, for example, it might make sense to include whether Instagram is a leading platform for your audience—if it’s not, that might be a sign to rethink your marketing plan. 31 Most marketing plans include information on four key subjects. How much detail you present on each will depend on both your business and your plan’s audience. a. Place. Where will you sell your products? Where will you be located? The following things are items you can include depending on the type of entity: Suppliers - Where do you get the raw materials you need for production, or where are your products produced? Production - Will you make, manufacture, or wholesale your products here? How long does it take to produce or get your products to you (logistics)? How will you handle a busy season or an unexpected spike in demand? What inventory do you have to have on hand to operate? Facilities - Where will you and any team members’ work? Do you plan to have a physical retail or office space? If yes, where? What is the rental or purchase price, and do you have a rental agreement (make sure to put it in the correct place in section 8: practicalities, as part of your appendix items). Equipment - What tools and technology do you require to be up and running? This includes everything from computers to lightbulbs and everything in between. As part of your appendix item, quotes and items carrying a cost should be reflected in the correct place in section 8: practicalities. This section should signal to your reader that you have got a solid understanding of your supply chain and robust contingency plans in place to cover potential uncertainty. If your reader is you, it should give you a basis to make other important decisions, like how to price your products to cover your estimated costs and at what point you plan to break even on your initial spending. b. Product. What are you selling, and how do you differentiate it in the market? What does your entity offer (services or products?). Make sure to elaborate on current offerings versus future expansion or research and development that you will be doing. c. Price. How much do your products cost, and why have you made that decision? What financial aspects determine your financial calculations in the budget and funding decisions? Price talks about income, so explain where your income will come from, if not from selling a service or product. 32  d. Promotion. How will you get your products or services in front of your ideal customer? How will you let them know about your entity and what you offer? This ties in very critically to your pre-launch activities and your marketing penetration strategies. There are two aspects to consider: i. Market Penetration initiatives ii. Marketing and Advertising  The Ansoff Matrix Strategy to penetrate or expand a market It is essential to understand how the entity/businesses will launch into a market, become known, and get people to participate or buy. Secondly, you may be in an existing market and want to expand or grow the business/entity. Several strategies could be considered, and using the framework of the ANSOFF Matrix is helpful: 1. NEW MARKETS: i. Market Development – selling existing products/services to new customers ii. Diversification – Sell new products or services to new customers 2. EXISTING MARKETS: i. Product Development – sell new products or services to existing customers  Expand what you offer ii. Market penetration – sell more of your existing products or services to existing clients. 33   Increased promotional activity - Businesses can also increase their market penetration by offering sales and promotions to customers. It can also mean new and better marketing initiatives.  Add more distribution channels – more ways to get what you offer to the customer  Price adjustments - One of the common market penetration strategies is to lower the products' prices cheaper than the competition. Penetration pricing is a marketing strategy businesses use to attract customers to a new product or service by offering a lower price during its initial offering. The lower price helps a new product or service penetrate the market and attract customers away from competitors.  After Sales Service – Provide excellent after care of customers for help, queries etc.  Improve Technology – sometimes, getting better management or operational technology and machines is vital to stay relevant and operate optimally. Revamping your digital marketing roadmap to increase brand awareness is important  Improve what you offer – aim to be better than you were or better than the competition or to solve your customer's problems and meet their needs specifically.  A recap of market penetration strategies The main objectives behind market penetration strategies are to either grow a market (as discussed above) and launch a product, enter the market as swiftly as possible and finally, capture a sizeable market share. Therefore, penetration strategies are also beneficial and should be considered in your business plans. 34  Marketing and advertising initiatives The success of these are very dependent on the following 3 factors:  Identify your target market – knowing whom you are trying to reach is critical. Know what your “ideal customer” looks like and what needs they expressed they wanted. Be intentional about your marketing initiatives and ensure they can and will reach your target market.  Focus on demographics – be sure to match what you sell and how you advertise to what your demographics wanted or needed and what would appeal to them. Let future buyers/users know of your uniqueness and competitive benefits through direct appeal marketing initiatives.  Advertising/marketing initiatives – Advertising is defined as any form of paid communication or promotion for the product, service and idea. It is all about how you let your potential customers know who and where and what you are about is vital. It is all about visibility and brand awareness. There are many promotional avenues like advertising, sales promotions, public relations and direct marketing. It covers the sales literature you plan to use, including information about your marketing materials and the role your website (technology) will play in your sales efforts. The following definitions of advertising strategies are helpful:  Above The Line (ATL) advertising is where mass media is used to promote brands and reaches out to more target consumers. All the conventional media are included here - television, radio and print media. ATL is not targeted at a particular customer but at a broad audience. ATL advertising tries to reach out to the mass as a consumer audience and is a branding strategy.  Below the line (BTL) advertising is an advertising strategy that promotes products in media other than mainstream radio or television. It is an exposure and loyalty strategy. Below-the-line advertising campaigns include direct mail campaigns, trade shows, billboards, banners, flyers, discount coupons, catalogues, and targeted search engine marketing as it targets a defined set of customers.  Through the Line advertising (TTL) refers to an advertising strategy involving both above and below the line communications. This strategic approach allows entities to engage with a customer at multiple points (for example, the customer will see the television commercial, hear the radio advert and be handed a flyer on the street corner). This enables an integrated communications approach where consistent messaging across multiple media create a customer perception. 35 The advent of social media has blurred the ‘line’ segregating the marketing techniques. These days, companies use an integrated approach involving both ATL and BTL strategies, called a Through the Line (TTL) approach. This approach allows brands to engage with their customers at multiple points and thus generate a solid perception regarding the company and the product, which is the main aim of marketing! The following illustration illustrates these concepts: Decide on what avenues or promotion methods you will use above the line (ATL) or below the line (BTL). ATL is used for branding effect, to generate mind share while BTL generates loyalty and repeat sales. ATL is tailored for mass audiences, while BTL promotions are tailored to their needs and preferences at an individual level. ATL promotions are difficult to measure, while BTL is measurable in terms of sales and feedback, and it gives marketers valuable insights on their return on investment (ROI). Since BTL focus is targeted and customer-centric, it is efficient, cost-effective, and great for start-ups. Social networking sites such as Facebook, Twitter, My Space, YouTube help generate leads and enable companies to develop a customer picture and use data in various ways. Through, social media is an integral part of BTL activity today. It beats even television, audio, and print magazines, in creating brand value in terms of numbers and is way more rewarding. 36 The following illustration explains the 3 marketing/advertising strategies In the marketing plan, this section demonstrates how an organization plans to use advertising to reach a target or specific market. Promotion may be the bulk of this section of your plan since you can more readily dive into tactical details. However, the other three areas should also be covered briefly—each is an essential strategic lever in your marketing mix. Do not forget to include banners, flyers, or any other promotional material used when launching the entity and used for branding. As part of the appendix items, these would be placed in the correct allocation in section 8: Practicalities. 37 6. SECTION SIX - Service (product) offering Your products or services will feature prominently in most areas of your business plan. However, it is crucial to provide a section that outlines all the key details for interested readers. If you sell or offer many items or services, you should now outline each one in detail and include more general information on each of your product lines. Describe each program you will offer, give examples in the appendix (Section 8 Practicalities) and write this section as if the audience knows nothing about your products, industry or service. You can also describe new products or services you will launch shortly according to your SMART goals, but as these are still in the “research & development phase”, it is not imperative that you give specific examples at this stage. Also, mention any intellectual property you own e.g. a course curriculum, a patent or trademark. The products and services section of your business plan is more than just a list of what your business will provide. Especially if you intend to use your business plan to get funding or find partners, your products and services section needs to showcase the quality, value, and benefits your business offers. i. What's Included in the Products/Services Section: The products and services section of your business plan outlines your product or service so that it is evident why it is needed by your market or meets their needs and how it will compete with other businesses selling the same or similar products and services. Your product and services section should include:  A description of the products or services you are offering or plan to offer per product item or service item e.g. if you are offering 3 training programs, each one must be described so that content, outputs/goals etc. are specified.  Whom your products or services are specifically geared towards if they differentiate by any demographic factor e.g. a children’s training program is specific to certain age groups, and this must be noted  How your products or services will be priced if there is a difference between each one  A comparison of the products or services your competitors offer in relation to yours 38   Any needs you have in order to create or deliver your products, such as up-to- date computer equipment  Any intellectual property, such as trademarks or legal issues you need to address  Future products or services you plan to offer – research and development activities Do not forget to put examples and copies of any of these items in the Appendix under the correct section. This can be in the form of program flyers, catalogues of products, trademark registrations etc. 39 7. SECTION SEVEN - Funding & Financial Section Ask yourself these two major questions before writing your Business Plan and clearly state them under the “Budget Assumptions”: i. How much money do I need, and where will I get it? The common question venture capitalists ask is how you would use less money than you are asking for. Do not just guess. It is better if you are specific to the amount and come up with different actions depending on how much money you raise. The best answer to this question is a mix between the priorities and the crucial actions necessary for your venture to run and the things and actions you can dispense. Use real facts to make assumptions, prove that your capital needs are realistic, and include these arguments in the Financial Plan. Real facts mean actual research you undergo for the Company Analysis, facts like the target market, the trends and standard practices in your field (Industry Analysis) and the Competitive Analysis.  Potential sources of income You need your community group's money to be coming from as many sources as you can manage, raised by as many people as you can coordinate. Most groups get into trouble because they have only two or three sources of funding, or because they have only two or three people involved in raising money, or rely on internal (management or friends or affiliates) as sources of income through pledges or donations. If any one of the sources or people go away, the organisation starts to slide into trouble. Here are some possible sources of income to consider. 1. Donations (internal or external) 2. Grants (Government or societal) 3. Community-Business Partnerships 4. Membership/Alumni/ fees 5. Special Fundraising Events 6. Sponsorships 7. Earned Income (sales etc.) To survive and thrive in a changing world, you need to be drawing from all six. There are several sources of funds that your community group might be able to tap into. These include:  Grants - identify federal, state or local government, philanthropic and corporate grants programs open to your group. 40   Sponsorship - identify possible major and minor sponsorship arrangements your group could pursue. This could include naming rights for your team, building, uniforms, scoreboard, events, players, trips, newsletter, lunches, etc.  Membership Fees - introduce different levels of membership or association fees - standard, family, non-playing, "friends of" or associate membership, "Angels" or "Gold" membership, lifetime members, three-game members, etc. - and charge a fee for each.  Bequests - provide general information or personal approaches to long-time benefactors and supporters about how they can provide a lasting gift for your organisation.  In-kind Support - you might be able to get donations of everything from a venue or office to office supplies, printing and photocopying, transport, entertainment, pro bono work (legal, accounting, IT, marketing/public relations, auditing), gifts, subscriptions, uniforms etc.  Donations - set up your organisation to receive online donations. Pursue personal donations, general appeals, direct mail, and appeals to your email database of all former players, members, supporters, etc.  Special Fundraising Events, including: o Sales, fetes. o Trivia nights, fashion parades, talent contests, art shows with a local retailer or gallery, dances and discos, film nights, restaurant functions. o Various 'athons, with club members and players gaining sponsorship for a walkathon, read-athon, skip-athon etc. o Sponsored record attempts or other similar quests. o Fun runs (carefully check legal requirements with local authorities) o Raffles, competitions, auctions - major items, memorabilia, services, travel, gifts, tickets, etc. o Sports events like Golf days o Galas and formal events with celebrities  Merchandising - sell your brand clothing, office products, sports products, glass wear etc.  Sales - sell your goods and services.  Other – in a church environment, this could include tithes and offerings. Your group will need to explore which of these funding avenues are feasible, achievable, and profitable. The trick is to be creative and make the initiative work for you. 41  ii. How much is my company worth? – making some assumptions. This is the “Valuation” stage. The Valuation can be pre-money or the value of your entity before getting funding, and post-money, how much your company is worth after the funding. The actual value of your venture will not be stated in the business plan, only hinted at because of some of the assumptions you will need to make and because it can only be proven once you start. You can hint at this by including the following in your assumptions: A) Real data regarding the market size, needs, and growth rates; B) Barriers to entry needed to block out the competition, i.e., aspects, technology or people that can help your venture be the only one that can handle the demand C) What critical expenses there are to launch and sustain the initiatives, including pre-launch marketing/promotional activities, CAPEX asset purchases and even staffing costs etc. You will be required to generate various budgets and financial reports to substantiate or put these assumptions into numbers, giving investors or shareholders a picture of a sound financial plan and your financial viability going forward. They also allow management and the finance committees to self-regulate and manage budget versus actuals once you start and make adjustments where necessary. Remember that a solid and ethical business also always have key governance processes for spending money (procurement), releasing funds (spending) and even for income controls. Examples of these should be found in your governance process part under the Organization and Management section. iii. Required output items in the Financial Section These are the required output measurable items in the Financial Section of your CFCI Bible College Business Plan, and they will all be dealt with individually: a. Financial Assumptions  Relating to income  Relating to expenses  Relating to other but has a financial implication b. 3 budgets  A budget (pre-launch)  A CapEx budget  Fund Raising Budget (with a Break-even analysis and profit calculation) 42  c. 3 Financial Reports/Statements  income-expenses statement  a cash-flow statement  a balance sheet d. Financial Information Analysis (Income Statement)  Gross Profit Margin %  Nett profit margin %  Expense ratio Let’s go through these carefully, one by one. a. Financial/ Budget Assumptions It is vital to clearly state the assumptions you may need to make at this stage, given there may be unknown or unsubstantiated facts you need to rely on to create a set of financials. These may include how many people you expect to use your product/service at launch, where specific funding may come from, what profits are expected from fundraising, and what growth trajectories you expect. The assumptions are stated first as they apply to your 3 types of budgets required and the 3 financial statements/reports you need to draw up. Think of everything from your plan and note it down as a list. You may group them into categories for  expenses and  income categories, or even separate it into separate assumptions for  the budgets and  for the financial reports Make sure to clearly state what fundraising you may embark on, but indicate what each project will cost (expenses), what income you must gain from it to not make a loss (break even analysis), and what profit it should make generate after that. The examples provided in this section relate to a bookshop within a church mall that can self-bind books and sell purchased stock. The following assumptions relate to this example 43  Example of Assumptions to be read in conjunction with Income Statement example provided  Income Assumptions: o Donations and Pledges  Initial start-up donation R20 000 (see the letter in section 8)  Donations from donors are expected in Feb to June @ R10 000 pm (see letters in section 8) o Income – expected profit from fundraising in Feb, July & Nov (see fundraising schedule and profit analysis) o Marketing actions in Oct & Nov will push income in Dec by 20% because of brand awareness o Open Day in Aug will generate additional income through merchandise sales and price promotions (15% growth expected)  Expenses Assumptions 1. Salaries one person x R900 per month year 1 (rest are volunteers) 2. No PAYE as under bracket but 0.1% for UIF 3. Entity tithe on Gross income is 10% 4. Marketing initiatives in 1st 2 months and again year-end (see marketing mix plan) 5. Leasing of chairs for facility per month fixed lease contract R350 6. Purchase of computers (see quote) month 1 and 6 (see Capex budget) 7. Estimated utility bill based on average consumption 8. Property insurance top up as renting 9. Rent fixed at R750 (see lease contract) 10. Parking and security concerns - security contract with an external supplier (see the contract) 11. Purchase of computer and matching software in Jan and June (see Capex Budget) 12. Costs to assist staff (transport) with an increase every 2 months 13. Lease contract from Imperial for Combi (see the contract) 14. Fundraising events in Feb, July & Nov (see fundraising budget) 15. Company Tax due for 6 months awaiting NPO status 16. Depreciation on computers (over 2 years) from month 2 17. No interest payable as no loans, overdraft or credit cards 18. Phone blitz in July for Open day in Aug increased phone bill 19. Marketing costs in Oct & Nov 20. Eskom price increase from Aug 21. Bank charges at a fixed monthly rate 22. COS expenses for materials, books etc. to sell 23. Direct production expenses (lease of machine binder for books being sold) 24. Year 2 expenses expected to increase by 9% 44 No matter how great your idea is, and regardless of the effort, time, and money you invest, a business lives or dies based on its financial health. People want to work with a business they expect to be viable for the foreseeable future. The level of detail required in your financial plan will depend on your audience and goals. However, typically you will want to include three types of budgets and three primary financial reports that provide a view of your funding needs and financial viability. b. Budgets In this section, we will look at three budgets that are useful in determining an entity's viability and financial position. A business budget is a spending plan for your business based on your income and expenses predicted. It identifies your available capital, estimates your spending, and helps you predict revenue. A budget can help you plan your business activities and act as a yardstick for setting up financial goals and preventing over-spending. A budget estimates revenue and expenses over a specified future time utilized by governments, businesses, and individuals. A budget is a financial plan for a defined period (monthly, quarterly or annually), and it is known to enhance the success of any financial undertaking greatly. Therefore, the purpose of budgeting is basically to provide a model of how the business might perform, financially speaking, if specific strategies, events, plans are carried out as noted in the rest of the plan. A budget is also very useful in the pre-launch phase of a new entity. It will focus the management on what finances are needed to launch and meet the desired expenditure and what expenses need to be paid before the launch (for advertising deposits etc.). All this is before a single sale (income) is made and before the entity is officially open.  REQUIRED OUTCOME 1: Pre-launch budget. For the sake of this exercise and Business Plan, to ensure the teams take note of the crucial 6 to 12 months BEFORE launch, the team is required to prepare a brief budget estimating what expenses will need to be spent in that pre-launch period and what finances need to be available to ensure this could happen for a successful launch. Students are expected to prepare a monthly or quarterly budget (depending on their needs and the type of entity being started). 45 It needs to include at least the following:  Expenses i. Estimate all costs related to fundraising projects planned and indicate which month they will be expended. They should link to the profit/income expected to generate after expenses are paid (a breakeven analysis will be required for each fundraising project). ii. Estimate and indicate all essential cost of sales items needed before start-up (e.g. Cost of items intended for resale, Cost of raw materials, Cost of parts used to make a product, Direct labour costs, Supplies used in either making or selling the product, Overhead costs, like utilities for the manufacturing site, and Shipping or freight in costs etc.) These must be put in the months they will be expended to ensure a well-planned start can take place. iii. Estimated costs and periods for advertising materials and promotion events. These could include flyers, banners, signboards etc. iv. Estimated other expenses (miscellaneous) such as repairs and maintenance to facilities, deposits for facilities being rented, costs for legal paperwork and applications etc.  Income i. These expenses should then indicate what money/revenue is needed upfront i.e. what the required financial contributions, loans and donations should be and when they should happen. This summary model or plan (budget) is for the pre-launch period. A complete monthly income statement will replace this in the actual launch and first year of operations. Take note to carry over any retained money from early donations, loans etc. and indicate this in the opening income section of the income statement. The following example is for a basic summary pre-launch project budget and does not split the budget into monthly periods. Students are welcome to do so, but the summary budget will be more than acceptable as long as it:  covers ALL the expenses foreseen (across all 4 categories above)  cross-references expenses to actual quotes in the Practicalities (Appendix) section.  the estimated months of expenditure are provided in words e.g. Oct to Dec  covers all forms of expected revenue (internal and external steams of revenue)  cross-references to pledge letters, loan approval letters etc., in the Practicalities (Appendix) section. The example on the following page may be utilized. 46 Illustration of a summary budget for the pre-launch period. [Company Name] Pre-launch Budget ( 6 to 12 month period prior ro launch) INCOME Budget Actual Difference Notes (months required, c/ref to letters etc.) Internal Funding Personal Management/Owner funding - Existing Other Revenue Streams - Total Internal Income - - - External Funding/Other Government Grants - Loans (bank or other) - Donations - Other - Total External Income - - - Total INCOME - - - EXPENSES Budget Actual Difference Notes (months required, c/ref to quotes etc.) [ Advertising ] [ itemized expense ] - [ itemized expense ] - [ itemized expense ] - [ itemized expense ] - [ itemized expense ] - [ itemized expense ] - [ itemized expense ] - Subtotal - - - [ Cost of Sales ] [ itemized expense ] - [ itemized expense ] - [ itemized expense ] - [ itemized expense ] - [ itemized expense ] - [ itemized expense ] - [ itemized expense ] - Subtotal - - - [ Fundraising Projects ] [ itemized expense ] - [ itemized expense ] - [ itemized expense ] - [ itemized expense ] - [ itemized expense ] - [ itemized expense ] - [ itemized expense ] - Subtotal - - - [ Miscellaneous/ Other ] [ itemized expense ] - [ itemized expense ] - [ itemized expense ] - [ itemized expense ] - [ itemized expense ] - [ itemized expense ] - [ itemized expense ] - Subtotal - - - Total EXPENSES - - - NET (Income - Expenses) - - -  REQUIRED OUTCOME 2: The CapEx Budget Capital expenditures (CapEx) are funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, buildings, technology, or equipment. Companies make this type of financial outlay to increase the scope of their operations or add some economic benefit to the operation. 47 A capital expenditure budget is a formal plan that states an organisation's amounts and timing of fixed asset purchases. Capital expenditures can involve a wide array of expenditures, including upgrades to existing assets, new facilities, and equipment required for new hires. Some companies have a policy only to procure CapEx items before the end of their financial year or at a set time. It is important to create a sound capital expenditure plan to avoid any expense overruns. Because capital expenditures represent substantial investments of cash designed to show a return on the capital investment over the years, they need to be carefully planned. Considering all costs, market expectations, and business growth, is crucial when drafting a Capex plan. The CapEx budget is always subject to available cash flow. The process of budgeting for capital expenditures (Capex) is essential for a business to operate and grow healthily and profitably. Capital expenditures are expenses a company makes to sustain and expand its business over a period of years. A capital expense is the cost of an asset that has usefulness, helping create profits for a period longer than the current tax year. This distinguishes them from operational expenditures, which are expenses for assets that are purchased and consumed within the same tax year. Operational expenses are just what their name signifies, the expenses required for the company to operate from week to week or month to month. For example, printer paper is an operational expense, while the printer itself is a capital expense. Capital expenditures are much higher than operational expenses, covering the purchase of buildings, equipment, and company vehicles. Capital expenditures may also include money spent to purchase other companies or for research and development. Preparing a capital expenditure budget varies from one company to another depending on such factors, such as the nature of the company's business and the size. Most companies budget their capital expenditures separately from other expenditures. Having a separate budget from operational expenses, for example, makes it simpler for companies to calculate the respective tax issues. For operational expenses, deductions apply to the current tax year, but deductions for capital expenditures are spread out over set years as depreciation or amortization. Much of the need for Capex comes from the assessment of department heads, who run the day-to-day operations of a specific group. They are well aware of any issues within their group that would need updating or replacement. This bottom-up approach assessment helps determine whether any Capex expenditures are beneficial for long- term growth, economically feasible, and the return on the investment. In the end, capital expenditures are inevitably determined by upper management and owners. Determining the max spend on capital is a crucial early step in Capex planning and is a task the Board, Finance Committee or COO and CFO make. They will make a thorough 48 assessment of Capex needs, whether this is for maintenance, new acquisitions, or growth, from the different departments, determine how much to budget for Capex and see if the cash flow is available. Once a company decides their spend limit, it can shape a plan around that. Capital budgeting involves vast expenditures, and management must evaluate whether the investment in assets is worth the cost. Capital expenses almost always impact operational expenses as purchased items need to be maintained, and the "big picture" needs to be considered. Management must decide whether capital expenditures come directly from company funds or if they must be financed. Financing increases the debt level of a firm, which also needs to be taken into consideration. Leasing is an option as well, one that becomes appealing if a company is purchasing assets such as computers or other technology equipment—items that can quickly become obsolete. In deciding on capital expenditure for a specific item, a company's management makes a statement about its view of its current financial condition and its prospects for future growth. Capital budgeting decisions also indicate what direction the company plans to move in the years ahead. Capital expenditure budgets are commonly constructed to cover periods of five to 10 years and can serve as significant indicators regarding a company's "five- year plan" or long-term goals. Once the input from different departments has been assessed, a budget decided based on need and business growth, and capital expenditures completed, a company must determine the returns on their capital expenditure. This will allow them to determine if their valuations were correct, whether or not the investments are paying off, what went right and what went wrong, so during the next Capex cycle, these decisions are continued or improved. Many financial tools are available in assessing the returns of capital expenditures, particularly the timeframe in which the investments will start to pay back. Return on investment ratios, hurdle rates, and payback periods are areas to analyse when determining the benefit of capital expenditure. Capital expenditures are a high cost for a company but are usually necessary. They come with many benefits and many risks, which is why it is imperative to create a sound and thorough capital expenditure budgeting plan that takes into consideration all variables. If a company can do this correctly and execute Capex investments appropriately, it will lead to positive growth and success A Capex Budget can also use the CapEx budget of the previous year as a benchmark to compare annual spending, measure budget versus actual and get a deviation at the end of the budgeted cycle. 49 The simple template outlined will suffice for the Business Plan being prepared for third- year students. The following illustration is an example of how a CapEx budget looks  REQUIRED OUTCOME 3: Fundraising Budget A fundraising event is either designed to raise awareness and support for an organization's