Business PlanningDefinitionsWord Definition

Break even analysis used to determine the level of sales that needs to be generated to cover the total cost of production

Budget the business's financial plan for the future

Business goals

Business Operations

Business Plan the 'road map' for future growth and development within a business. It sets out the desired goals and direction of the business.

Business planning corrective action

Cash flow projection the changes to the cash position brought about by the operating, investing and financial activities of the business

EEO (Equal Employment opportunity)

Evaluation the process of assessing whether the business has achieved stated objectives

Finance (area of the business)

how a business sources and manages the risk of its funding

Fixed cost costs that do not vary regardless of how many units of a good or service are produced

Forecasts (or projections)

the business's predictions about the future

Grant any monetary or financial assistance that does not generally have to be repaid

Human resources the employees of the business and are generally its most important asset

Lean manufacturing an operational strategy aimed at achieving the shortest possible production time by eliminating waste

Logistics the management of business operations, such as the purchasing, storage, transportation and delivery of goods along the supply chain

Long term growth the ability of a business to continually expand

Marketing a set of interacting activities designed to plan, price, promote and distribute products to present and potential customers. Marketing is more than just advertising.

Modifying (corrective action)

the process of changing existing plans, using updated information to shape future plans

Monitoring the process of measuring actual performance against planned performance

Objectives a specific statement detailing what a business (or individual) needs to achieve in order to accomplish its vision

Operational Objectives

short-term issues and describe the course of action necessary to achieve the tactical objective and strategic goal

Organisational structure

the framework in which the business defines how tasks are divided, resources are used, and departments are coordinated.

Performance standard

a forecast level of performance against which actual performance can be compared

Resource allocation the efficient distribution of resources so as to successfully meet the goals that have been established

Return any profit that investors make from their investment

Short term growth

Situational Analysis

Six sigma process a process in which 99.99% of all manufactured products are defect free

Social justice adopting a set of policies to ensure that employees or other community members are treated equally and fairly

Strategic Goals long-term, broad aims and apply to the business as a whole

SWOT Analysis the identification and analysis of the internal strengths and weaknesses of the business, and the opportunities in, and threats from, the external environment

Tactical Objectives mid-term, departmental issues and describe the course of action necessary to achieve the business's strategic goals

Total Cost cost of producing a certain number of goods or services; the sum of the fixed and variable costs for those units

Total Revenue the total amount received from the sales of a good or service

Variable cost costs that depend on the number of goods or services produced

Vision Statement money that is invested in small and sometimes struggling businesses that have the potential to become very successful

Outcomes  The student:P1 discusses the nature of business, its role in society and types of business structureP3 describes the factors contributing to the success or failure of small to medium enterprises P4 assesses the processes and interdependence of key business functionsP6 analyses the responsibilities of business to internal and external stakeholdersP7 plans and conducts investigations into contemporary business issuesP8 evaluates information for actual and hypothetical business situationsP9 communicates business information and issues in appropriate formatsP10 applies mathematical concepts appropriately in business situations  Content Students learn to:examine contemporary business issues to:

discuss the influence of government on SMEs assess the effect of two changes in the business environment on SMEs

 investigate aspects of business using hypothetical situations and actual business case studies to:

explain how the business plan is determined in at least one SME explain how SMEs can enter the global market for long-term growth identify ways that SMEs gain a competitive advantage

 prepare a small business plan:

based on a hypothetical or actual business presented in a business plan/report format

Business Planning1. The Role of the Business Plan2. Business Planning process3. Sources of Planning Ideas4. Vision Statement5. Goals/Objectives6. Organising Resources7. Forecasting8. Monitoring & Evaluating9. Taking Corrective Action - Modification

1. The Role of the Business Plan The first task of anyone wanting to commence a business is to undertake thorough planning.

The planning will provide the foundation on which the business will be built. Strong, firm foundations will usually result in a successful business.

Small - Medium Enterprise (SME)SMEs play an important role within the Australian economy. These roles include:

Providing employment for about 5.3 million people Produce 50% of all products produced each year Generate an increasing amount of total exports Provide a wide range of products used by large businesses Earn more profits and pay more taxes than large businesses.

Although the individual efforts of each SME may appear insignificant, their total impact is extremely important and can be seen as the 'engine room' of the Australian economy. In recent years, SMEs have created many jobs, become more innovative and are increasingly entering overseas markets. A business classified by the number of employees, size and legal structure. Definition of Small to Medium Enterprise (SME)

No universally accepted definition of SME Most widely accepted is based on number of employees:

Micro - fewer than 5 Small - 5 to 19 Medium - 20 10 199

Other Characteristics of SMEs

Independently owned and operated Not dominant in industry Bulk of capital provided by owner Personalised service Local (but not always) Personal qualities

Role of SMEs

Employ about 73% of people working in private sector Produce about 50% of all products in Australia Account for 20% of all R&D spending

Economic ContributionSMEs contribute to Australia's:

GDP (50% of Australia's GDP) Employment (7.5 million jobs) Balance of payments (small but growing rapidly) Innovation (20% of R&D spending)

Success or Failure of SMEsFive keys to SME success:

Entrepreneurial abilities Access to information Flexibility Focus on market niche Reputation

SME Failure

About 71% of all SMEs fail within the first 5 years of operation Many reasons for failure, including:

Undercapitalism Lack of planning Managerial incompetence

Influences in Establishing a Small to Medium EnterprisePersonal Qualities

Qualifications Few or no formal qualifications required

Skills Obtained through experience, education and/or training

Motivation 75% of SME owners spend 50 hours/week or more, 25% put in 65 hours/week or more

Entrepreneurship Risk taker, self-confident, driven, likes being around people, bounces back from failure

Cultural background Some cultures are more supportive of entrepreneurial activity

Gender More men than women start small businesses, but women entrepreneurs growing faster

Sources of Information

Professional advisors Accountants, solicitors, bank managers and management consultants

Government agencies Small Business NSW (smallbiz.nsw.gov.au) Business Enterprise Centres (becaustralia.org.au) Business.gov.au

Other sources Chamber of commerce Trade associations Australia Bureau of Statistics Small Business Association (smeaustralia.asn.au)

The Business Idea - Competition

The world needs yet another Myspace or Friendster except several years late. We'll only open it up to a few thousand overworked, anti-social, Ivy Leaguers. Everyone else will then join since Harvard students are so cool. - Facebook

We'll sell books online, even though users are still scared to use credit cards on the web. Their shipping costs will eat up any money they save. They'll do it for the convenience, even though they have to wait a week for the book. - Amazon

We are building the world's 20th search engine at a time when most of the others have been abandoned as being commoditized money losers. We'll strip out all of the ad-supported news and portal features so you won't be distracted from using the free search stuff. - Google

People will use their insecure AOL and Yahoo email addresses to pay each other real money, backed by a non-bank with a cute name run by 20-somethings. - PayPal

Filters! That's right, we got filters! - Instagram

It's like email, SMS or RSS. Except it does a lot less. It will be used mostly by geeks at first, followed by Britney Spears and Charlie Sheen. - Twitter

Is competition essential for long-term business success? Explain with examples.Competition can be useful for long-term business success to ensure the business is motivated to be innovated and create more products. For example, when Vodafone was in its prime, it ceased creating more innovative technologies, providing the opportunity for competing businesses to capture the target market, including Optus and Telstra. Competition also ensures that prices remain at a reasonable price for consumers.

Establishment options 3 main ways of establishing ownership in a business:

1. Starting a new business yourself2. Buying an existing business3. Buying into a franchise

Starting a new business yourselfAdvantages Disadvantages Freedom to set up exactly as you want Owner can drive pace of growth and

change No goodwill that needs to be paid If funds are limited, can start on small

scale

High risk Difficult to obtain finance Time needed to develop suppliers, customer base

and employ staff May be considerable period before generates

profits

Buying an existing businessAdvantages Disadvantages Sales to existing customers will generate

income Good history increases likelihood of

success Easier to obtain finance Equipment available for immediate use Existing employees can provide

assistance

May be difficult to change image if business had poor reputation

Difficult to assess value of goodwill, so may overpay

Success of business may have been due to previous owner's personality and contacts

Some employees may resent change

Buying a franchiseAdvantages Disadvantages Franchisor often provide training Immediate benefit from franchisor's

goodwill Equipment and premises design usually

established Advertising strategy often exists Volume buying often possible

Franchisor controls operations Profits must be shared with franchisor Franchisor often charges fee for advice Franchisee may feel like an employee Franchisee must share burden of franchisor's

business mistakes

MarketMarket Analysis

In order to determine whether there will be actual demand for a good or service, businesses should undertake market analysis. A variety of methods can be used, such as surveys, questionnaires and focus groups. Market Analysis Questions

What are the demographics of our potential customers? Why do they want to buy our products? What do they see as our strengths and weaknesses? Who are our competitors? What do our competitors offer that we don’t?

PriceWhat methods can businesses use to work out what price they should sell at?

Percentage mark-ups Recommended retail price Price leadership and competition What the market will bear

LocationDifferent businesses are suited to different locations. Options include:

Shopping centre complex Retail shopping strips Online presence Home based business

FinanceFinance refers to the funds required to carry out the activities of a business.Source Two main sources of funds:

Debt - borrowed money that must be repaid with interest Equity - an ownership interest in a business

Sources of Finance: Credit union Trust fund Banks Family

Debt FinanceAdvantages:

Don’t have to sell ownership of business Tax effective (interest costs are tax deductible)

Disadvantages: Interest must be repaid regardless of whether the business is profitable Principal must eventually be repaid or refinanced

Types of debt finance

Short term (less than 1 year), includes bank overdrafts, credit card debt, commercial bills, commercial paper and trade credit

Medium term (1 to 5 years), includes expansion, new equipment, developing new products Long term (more than 5 years, includes business loan, line of credit, mortgage and leases

Equity FinanceRefers to the funds contributed by the owner/s.Advantages:

No interest needs to be paid, and dividends are only paid if and when the business is profitable

Principal doesn’t need to be repaidDisadvantages:

Selling ownership in the business reduces the potential upside if the business is successful There is an opportunity cost to equity in a business

Cost of FinanceWill depend on:

Type of finance (e.g. secured, unsecured) Source of finance (e.g. bank, building society, credit union) Term of finance (e.g. maturity)

Financial RequirementsCosts of running business can be split into:

Establishment costs: fixed costs of setting up the business (e.g. stock, equipment, legal fees) Operating costs: ongoing costs of running the business (e.g. wages, rent, interest)

Legal ConsiderationsThere are several legal issues that must be considered when setting up a business. These include:

Business name registration and trademarking - Business Names Act 1962, Trade Marks Act 1995

Zoning: Local council determines whether particular businesses can operate in specific areas Health regulations for businesses dealing with foods, which include regular visits by health

inspectors http://www.foodauthority.nsw.gov.au/penalty-notices/default.aspx?template=results

Trade Practices Act 1974 - law which protects both consumers and the business. It protects consumers from deceptive or misleading practices, and it regulates the trade practices of businesses.

Consumer and Competition Act 92010), which is designed to protect consumers from deceptive practices http://www.youtube.com/watch?feature=player_embedded&v=uE8BB-ioNRw

Human resourcesWhen establishing an SME, the owner needs to decide how many, if any, employees will be required to operate the business.Main sources of employees are:

Advertisements Word of mouth Schools, universities or TAFEs Recruitment agencies Job service Australia

Employee skillsEmployers must match the skill requirements of the job vacancy with the skills of potential employees.Employers can either:

Recruit people who have the required skills Provide training to improve the skill level of existing employees

Employee costsThe total cost of an employee is more than the wage/salary paid. These are called non-wage or on-costs.These non-wage costs often account for around 30-40% of the total remuneration package, and include:

Superannuation Sick leave Holiday pay Recruitment costs

TaxationThe main federal taxes imposed on businesses include:

PAYG on behalf of employees Goods and services tax (GST) of 10% Company tax (30% of taxable income) Capital gains tax - calculated on profit made on sale of assets Fringe benefits tax - tax on the provision of a benefit to an employee eg. Cars for private use,

low-interest loans, entertainment expenses, housing & accommodation - in place of salary or wage - paid by employer at 48.5%

The main state taxes imposed on businesses include: Stamp duty on transfer of assets Land tax (paid on land valued at more than $406,000, but primary residence and farms exempt

- calculated as $100 plus 1.6% of land value minus threshold) Payroll tax (5.45% if wages above $750,00 per year

The main local government taxes and charges imposed on businesses include: Rates based on value of land Water and sewerage charges waste management services development and building approval

fees

The Business Planning ProcessA business plan is a written statement of the business's goals and the steps taken to achieve them. Elements of a Business Plan

1. Executive summary2. Business goals3. Strategies4. Business description and outlook5. Management and ownership6. Operational plans7. Marketing plans8. Financial plans9. Human resource plans

Benefits of a business plan

Identifies business strengths and weaknesses Helps test the viability of the business Indicates the owner's ability and level of commitment Forces the owner to think through the detailed steps as to how the business goals will be

achieved Sources of Planning IdeasInformation for planning is obtained from different sources within and outside the business. Situational Analysis

A situational (SWOT) analysis is a techniques for gathering the information for use in a business plan. It involves doing an internal assessment (strengths and weaknesses) and an external assessment (opportunities and threats)

Vision, Goals and/or Objectives

The vision statement broadly states what the business aspires to become.Why is a vision statement important?

It helps guide and direct the business owners, managers and employees. It helps create a business's culture - Google's "You can make money without doing evil." It acts as a benchmark against which to measure all the business's decisions and operations.

Goals and ObjectivesVision statements are broad, while goals and objectives are more specific.

Goals are strategic long term (years) aims Objectives are tactical (months) and specific (SMART)

Example Part of Google's vision statement might be that you can make money without doing evil A goal might be to increase market share An objective might be something more specific such as increasing Gmail's active user

base by 10% by September 2013Types of GoalsThere are 3 main types of goals owners try to achieve:

Financial - increase profit, market share, increase share price Social - providing employment, ecological sustainability or community service Personal - achieve financial security, work a four day week, successfully grow a business

Long Term GrowthIn order to achieve profit maximisation, a business must aim for long term growth. Strategies that firms can adopt to achieve long term growth include:

Listen to customer feedback Develop supplier and customer partnerships Ongoing product innovation

Organising ResourcesOnce a business owner has decided on the vision, goals and objectives for a business, the next stage in the planning process is the organisation of resources. Organisation of resources involves working out:

What is to be done Who is to do it How it is to be done

What sort of resources does a business have? Money Employees Storage Factories

OperationsThe sorts of questions that need to be addressed by the operations function include:

What type of capital equipment and raw materials are needed? Which suppliers will be used to purchase the capital equipment and raw materials? What will be the impact of the raw materials and capital equipment purchases on finance? What storage, warehouse and delivery systems are required? What level of training will be required for workers?

MarketingThe set of activities which are designed to satisfy a customer's needs and wants.The business must:

Have a marketing plan Ensure all aspects of the business are in line with the marketing plan e.g. adequate resources,

personnel

FinanceThe funds required to operate a business.

Businesses need to find the most appropriate source e.g. savings, loans Decisions such as: amount of equity, potential loss of control, access to government grants

(payment which does not have to be repaid for things such as R & D, innovation and exporting)

Human ResourcesThe activities associated with managing the people of the business.Decisions involve recruitment, selection processes, compliance with legislation such as anti-discrimination and equal employment opportunities. ForecastingForecasts (or projections) are the business's predictions about the future.

A business needs more than just information about present business conditions. It also needs information about possible future events. They help with effective planning:

Labour Raw materials Money/finance Building

(4 main Business Functions)

Total Revenue Total revenue is the total amount received from the sales of a good or service and is calculated by multiplying the selling price (P) by the quantity (Q) of units sold. This can be represented mathematically as:

P x Q = TR Sales forecasting data:

Can be gathered by using market research techniques such as customer surveys Are more precise if the business has some previous sales history to act as a guide Good for ordering stock/supplies

Total CostThe costs involved in operating a business can be broadly classified as either fixed or variable costs. Fixed costs are costs that do not vary regardless of how many units of a good or service are produced. Variable costs are costs that depend in the number of goods and services produced. Variable cost, therefore, will increase if more goods and services are produced and decrease when fewer goods and services are produced. The total cost of producing a certain number of goods or services is the sum of the fixed costs and variable costs for those units. This can be represented mathematically as:

FC + VC = TC

It is possible to forecast total cost by estimating the change in variable costs at different levels of production. Fixed cost will remain the same.

Break-even AnalysisBreak-even AnalysisBreak-even analysis determines the level of sales that needs to be generated to cover the total cost of production. Total cost of production includes:

Fixed costs Variable costs

Sales above the break-even point will mean a profit; sales below the break-even profit will mean a loss.

Break-even analysis is an important planning tool because management can determine the level of sales required to obtain a profit. It can also be used to determine the effect on profit if sales increase or decrease. This planning tool is used in the strategic planning stage, before budgets are prepared. The break-even sales quantity can also be calculated by using the formula:

Quantity = Total fixed costs / (Unit price - variable costs per unit)

Cash Flow Projections The cash flow projection shows the changes to the cash position brought about by the operating, investing and financial activities of the business. By looking at these figures we can predict the future on:

Cash payments we will receive (Accounts Receivable) Cash payment we will need to pay (Accounts Payable)

The cash flow projection is an important tool for cash flow management. It offers:

The SME owner a clear indication of how much capital investment the business idea requires A bank loans officer evidence that the business is a good credit risk

Overall, this information will point out periods when business expenses are too high or times when a short-term investment is possible to deal with a cash surplus.

MonitoringMonitoring is the process of measuring the performance of the business.Monitoring involves two steps:

Establishing performance forecasts (or estimates) Measuring actual performance

EvaluatingEvaluating is the process of comparing the performance estimates with the actual performance.The business is asking "Have we achieved what we planned to achieve?"Firms will monitor and evaluate their budgets, of which sales and profit and important components. Monitoring and Evaluating BudgetsA budget is a business' financial plan for the future, and contains projections of income and expenses over time. Monitoring and Evaluating SalesMonitoring and evaluating sales is critically important to determine the effectiveness of marketing strategies. Businesses will examine sales performance:

Overtime By geographical area By product line

Monitoring and Evaluating ProfitAs profit is one of the main goals of business, monitoring and evaluating profit is a key indicator of performance. Profit is important as both a return for owners and as a potential source of future funding for the business. Taking Corrective ActionIf the actual performance of a business is falling below the forecast performance, this provides an opportunity to take corrective action. This may involve altering marketing strategies, modifying operational processes or staff changes.

Critical Issues in Business Success and FailureAround 70% of SMEs fail within their first 5 years. While there are many reasons why SMEs can fail, there are some critical issues that are important for all businesses. Business Plan

"By failing to prepare, you are preparing to fail" - Benjamin Franklin"A goal without a plan id just a wish" - Antoine de Saint-Exupery

It is essential that businesses develop a business plan that sets out what they are trying to achieve, and how they intend to achieve it. While business plans may differ in their detail, they all contain some key components:

Clear statement of business goals Plan for achieving those goals Standards for measuring performance

A business plan should take a lot of work and thought, and needs to be presented in a professional manner as it will be read by bank managers, potential investors, financial advisors, potential directors etc. Management - Staffing & Teams"The magic formula that successful businesses have discovered is to treat customers like guests and employees like people." - Thomas J PetersManagement is the process of working with and through other people to achieve the goals of the business in a rapidly changing environment.

Much of the success of a business depends on having satisfied and motivated employees. This means that is essential that owners spend enough time and money on the recruitment process. Trend AnalysisTrend analysis is the process of investigating changes over time and looking for a trend in order to predict the future. Trend analysis helps owners forecast factors such as:

Sales Total revenue Total operating costs Gross and net profit

Identifying and Sustaining Competitive AdvantageBusiness success depends on gaining a competitive advantage in the market. There are two basic ways that a competitive advantage may exist:

Cost advantage

Differentiation advantageSome of the ways that a firm may maintain a competitive advantage include:

Patents and trademarks Proprietary know-how Installed customer base Reputation of the firm Brand equity

Avoiding over-extension of finance and other resourcesOverextension of financing means that firms often borrow too much, and if their revenue projections turn out to be overly optimistic they can default (be unable to pay the interest and/or principal) on their loans. One cause of overextending finance is inadequate business planning; owners underestimate the fixed costs of establishing their business and borrow more than they intended. Common ways that businesses overextend include:

Purchasing rather than leasing premises, capital equipment and vehicles Employing too many staff Purchasing too much stock Purchasing or leasing high specification capital equipment or fit-outs before business plan is

proven Using TechnologyImprovements in technology have enabled businesses to:

Reach potential customers throughout the globe Source low cost suppliers, wherever they may be found Keep track of employees and shipments

Examples of technology in business

Payments - EFTPOS, Paypal, Square, NFC E-Commerce - Ebay, Amazon, Zappos, Etsy Communication - mobile phones, VOIP, Google coordinate

http://www.google.com/enterprise/mapsearth/products/coordinate.html Manage business information - SAP, PeopleSoft Automation

http://www.ted.com/talks/rodney_brooks_why_we_will_rely_on_robots.html Economic Conditions

Changing economic conditions can influence business success or failure A booming economy (strong growth) can increase demand for many goods and services,

particularly luxury goods While a slowing economy can reduce demand for many goods and services, some businesses

do well in these times (liquidators; discount retail; gambling; CCC)