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Names of Principle Customers | Total Purchasing Volume | By Products | % of Your Sales |
____________________ | _____________ | ________ | _________ |
What has been the sales trend in your market area for your principal product(s) over the last 5 years? What do you expect it to be 5 years from now? You should indicate the source of your data and the basis of your projections.* Industry and product statistics are usually indicated in dollars. Units, such as numbers of customers, numbers of items sold, etc., may be used, but also relate your sales to dollars.
Product | Source of Data | Sales 5 Years Ago | Current Sales | Projected Sales In 5 Years |
1. ________ | __________ | ____________ | _________ | ____________ |
2. ________ | __________ | ____________ | _________ | ____________ |
List the name and address of trade associations which service your industry and indicate whether or not you are a member.
List the name and address of other organizations, governmental agencies, industry associations, etc., from which you intend to obtain management, technical, economic, or other types of information and assistance.
What percentage of total sales in y-3our market area do you expect to obtain for your products after your facility is in full operation?
Products or Products Category | Local Market (%) | Total Market (%) |
________________________ | ____________________ | __________________ |
What sales volume do you expect to reach with your products?
Total Sales | Product(s) 1 | Product(s) 2 | |
First Year | $__________ | $__________ | $__________ |
Units | ___________ | ___________ | ___________ |
Second Year | $__________ | $__________ | $__________ |
Units | ___________ | ___________ | ___________ |
Third Year | $__________ | $__________ | $__________ |
Units | ___________ | ___________ | ___________ |
*This is a marketing research problem. It will require you to do some digging in order to come up with a market projection. Trade associations will probably be your most helpful source of information. Statistics Canada publishes a great deal of useful statistics.
Production is the work that goes on in a factory that results in a product. In making your business plan, you have to consider all the activities that are involved in turning raw materials into finished products. The work blocks which follow are designed to help you determine what production facilities and equipment you need.
List the basic operations, for example, cut and sew, machine and assemble, etc., which are needed in order to make your product.
What raw materials or components will you need, and where will you get them?
Material/Component | Source | Price | Comments (location, delivery, financing, etc.) |
______________ | ___________ | $__________ | ______________________ |
______________ | ___________ | $__________ | ______________________ |
What amount of raw materials and/or components will you need to stock?
Are there any special considerations concerning the storage requirements of your raw material? For example, will you use chemicals which can only be stored for a short time before they lose their potency?
List the equipment needed to perform the manufacturing operations. Indicate whether you will rent or buy the equipment and the cost to you.
Equipment | Buy | Rent | Your Cost |
_______________________ | ___________ | ___________ | ___________ |
_______________________ | ___________ | ___________ | ___________ |
_______________________ | ___________ | ___________ | ___________ |
Your equipment facilities, and method of operation must comply with Occupational Health and Safety.
List the labour skills needed to run the equipment.
List the indirect labour, for example, material handlers, stockmen, janitors, and so on, that is needed to keep the plant operating.
If persons with these skills are not already on your payroll, where will you get them?
How much space will you need to make the product? Include restrooms, storage for raw materials and for finished products, and employee parking facilities if appropriate. Are there any local ordinances you must comply with?
Do you own this space? | Yes _____ | No _____ |
Will you buy this space? | Yes _____ | No _____ |
Will you lease this space? | Yes _____ | No _____ |
How much will it cost you? | _____________________ |
Overhead. List the overhead items which will be needed in addition to indirect labour and include their cost.
Examples are: tools, supplies, utilities, office help, telephone, payroll taxes, holidays, vacations, and salaries for your key people (sales manager, plant manager, and foreman).
Money is a tool you can use to make your plan work. Money is also a measuring device. You will measure your plan in terms of dollars; and outsiders, such as bankers and other lenders, will do the same.
When you determine how much money is needed to start (or expand) your business, you can decide whether or not to move ahead. If the cost is greater than the profits that the business will make, there are two things to consider. First, many businesses do not show a profit until the second or third year of operation. If this looks like the case with your business, you will need the plans and financial reserves to carry you through this period. On the other hand, maybe you would be better off putting your money into stocks, bonds, or other reliable investments rather than taking on the time consuming job of managing a small business.
Like most businesses, your new business or expansion will require a loan. The burden of proof in borrowing money is upon the borrower. You have to show the banker or other lender how the borrowed money will be spent. Even more important, the lender needs to know how and when you will repay the loan.
To determine whether or not your plan is economically feasible, you need to pull together three sets of figures:
Then visit your banker. Remember, your banker or lender is your friend, not your enemy. So, meet regularly. Share with your banker all the information and data you possess. If the lender is ready to help you, he (or she) needs to know not only your strengths but also your weaknesses.
To determine whether or not your business can make its way in the marketplace, you should estimate your sales and expenses for 12 months.
Estimates of future sales will not pay an owner-manager's bills. Cash must flow into the business at proper times if bills are to be paid and a profit realized at the end of the year. To determine whether your projected sales and expense figures are realistic, you should prepare a cash flow forecast for the 12 months covered by your estimates of sales and expenses.
A balance sheet shows the financial conditions of a business as of a certain date. It lists what a business has, what it owes, and the investment of the owner. A balance sheet enables you to see at a glance your assets and liabilities.
Your manufacturing business is only part way home when you have planned your marketing and production. Organization is needed if your plant is to produce what you expect it to produce.
In most situations, you as the owner-manager probably cannot do all the work yourself. In order for your operation to run smoothly, you will have to delegate work, responsibility, and authority. A tool that may be helpful when dispersing this responsibility is the organization chart. It shows at a glance who is responsible for the major activities of a business. Keep in mind no matter how your operation is organized, it is important that you stay in control of the financial management.
It is important that you recognize your weaknesses early on. There are many professionals out there who are qualified to handle your business concerns. Depending on your situation, you may consider hiring a consultant on an as-needed basis, hiring permanent personnel, or obtaining a company lawyer and/or an accountant.
To make your business plan work you will need continuous feedback. For example, the year end profit and loss (income) statement shows whether your business made a profit or loss over the past 12 months.
While this document provides valuable information, it is only received once a year. In today's fast pace business world you can no longer wait 12 months to get the score. Feedback must be received at frequent intervals. One way in which a company can obtain these updates is to produce profit/loss statements at the end of each month or at the end of each quarter. Once this information is received, however, it is up to management to ensure that cashflow projections and financial decisions are updated.
The management control system that provides your key employees with current information should be set up to ensure that deviations from approved policies, procedures, and/or practices are corrected in time. The management control system should provide precise information on inventory, production, quality, sales, collection of accounts receivable, and disbursements. The simpler the system, the better.
The purpose of controlling inventory is to provide maximum service to your customers as well as smooth production for yourself. Your goal should be to achieve a rapid turnover on your inventory. The fewer dollars tied up in raw materials and finished goods inventory, the better. In other words, the faster you regain your inventory investment through sold product, the faster you can reinvest your capital to meet additional consumer needs.
In setting up inventory controls, keep in mind that the cost of the inventory is not your only cost. There are inventory costs, such as the cost of purchasing, the cost of keeping inventory records, and the cost of receiving and storing raw materials.
In preparing this business plan, you have estimated the cost figures for your manufacturing operation. Use these figures as the basis for standards against which you can measure your day-to-day operations to make sure that the clock does not nibble away at profits. These standards will help you to keep machine time, labour man-hours, process time, delay time, and down time within your projected cost figures. Periodic production reports will allow you to keep your finger on potential drains on your profits and should also provide feedback on your overhead expense.
Poorly made products can cause a company to lose customers. When a product fails to perform satisfactorily, shipments can be held up, inventory can increase, and a severe financial strain can result. Depending upon your type of production system checkpoints, reports, etc. within your quality control system must be detailed. In creating your quality control system, keep in mind that its purpose is to answer two questions: What needs to be done to ensure that work is done correctly the first time? Is there a need to do extensive quality control on raw materials? If your answer is yes to the second of these questions, keep in mind that this may be an added expense you must consider.
To keep on top of sales, you will need answers to questions, such as: How many sales were made? What was the dollar amount? What products were sold? At what price? What delivery dates were promised? What credit terms were given to customers?
It is also important that you set up an effective collection system for "accounts receivable", so that you don't tie up your capital in aging accounts.
Your management controls should provide information about what your company pays out. In checking on your bills, you do not want to be penny-wise and pound-foolish. You need to know that major items, (i.e. paying bills on time so you can get the supplier's discount), are being handled according to policy. Your review system should allow you the opportunity to make decisions on the use of your funds. This way, you can be on top of emergencies. Your system should also inform you that tax moneys, such as payroll income tax deductions, are set aside and paid out at the proper time.
Break-even analysis is a management control device which shows what level your sales must be in order to break-even on your costs with NO profit and NO loss.
When preparing the start-up or expansion of a manufacturing business, you should determine at what level sales must be in order to pay off the cost of production. By doing this you will have a better idea of how long it will be before you can expect a profit.
Profit depends on sales volume, selling price, and costs. So, to figure your break-even point, first separate your fixed costs, such as rent or depreciation allowance, from your variable costs per unit, such as direct labour and materials.
The formula is:
Break-even volume | = | total fixed costs/(selling price-variable costs per unit) |
Break-even volume | = | $100 000/($100 - $50) |
= | 200 units |
Product 1: ______ | Product 2: ______ | Total Sales: _______ |
The best made business plan gets out of date because conditions change. Sometimes the change is within your company. For example, several of your skilled operators quit their jobs. Sometimes the change is with customers. Their desires and tastes shift. For example, a new idea can sweep the country in 6 months and die overnight. Sometimes the change is technological as when new raw materials and components are put on the market.
In order to adjust a business plan to account for such changes, an owner-manager must:
You must be able to delegate parts of this work. For example, you might assign your shop foreman the task of watching for technical changes as reported in trade journals for your industry. Or you might expect your sales manager to keep you abreast of significant changes that occur in your markets.
But you cannot delegate the hardest part of this work. You cannot delegate the decisions as to what revision will be made in your plan. As owner-manager you have to make those judgments on an on-going basis.
When judgments are wrong, cut your losses as soon as possible and learn from this experience. The mental anguish caused by wrong judgments is part of the price you pay for being your own boss. You get your rewards from the satisfaction and profits that result from correct judgments.
Sometimes, serious problems can be anticipated and a course of action planned. For example, what if sales are 25% lower than you anticipated, or costs are 10% higher? You have prepared what you consider a reasonable budget. It might be a good idea to prepare a problem budget, based on either lower sales, higher costs, or a combination of the two.
You will also have to exercise caution if your sales are higher than you anticipated. The growth in sales may only be temporary. Plan your expansion. New equipment and additional personnel could prove to be crippling if sales return to a previous lower level.
Keep in mind that few owner-managers are right 100% of the time. They can improve their "batting average" by operating with a business plan and by keeping that plan up to date.
Source: U.S. Small Business Administration
Prepared by: Saskatchewan Industry and Resources, Business and Co-operative Services
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