1. Before embarking on planning, be clear about personal goals.. (See Figure 2)
   Make sure the goals set are the true goals. For example is the goal to become a successful business person to create a busy life style, providing both social and business contacts, or to provide financial security which allows provision for family and the development of other social activities?
   What level of income do you require to meet your annual expenditure needs?
   What is your target relating to personal wealth creation, both outside and additional to the business, or developing the worth of the business?
2. Convert the relevant personal goals into business goals.
   For example, what trading profit level is required to meet personal goals? Does the level of profit need to be increased significantly? Will this require a significant expansion of the business?

   Figure 2:-Sole Trader - Personal Requirements converted to a Profit Requirement

   Figure 2 shows the calculation of a Trading Profit requirement, if the sole trader is to meet his/her personal expenses needs, and acquire a target personal wealth in addition to the value of the business. The target wealth, for the purposes of the example is set at one million dollars at today's values in 20 years time. Such an exercise inevitably involves assumptions relating to time scale, inflation (even 2% makes a significant difference over 20 years), and taxation. The example is not meant to detail how the calculations should be done, but rather to show how personal objectives can be evaluated and converted into business goals. It should, of course, be adjusted to meet individual income requirements, circumstances and aspirations.
   
    

    

   CALCULATION OF PROFIT REQUIREMENT
   The objective is to provide a gross salary, which will cover living expenses and allow investment outside of the business to create, in 20 years time, wealth equivalent to one million dollars at "todays" dollar value
   BUDGETED PERSONAL EXPENDITURE		PROFIT REQUIREMENT CALCULATION
   EXPENSE ITEM	ANNUAL SPEND $	ITEM		WEALTH ADDITION $
   Life Assurance Medical Insurance Rates Insurance House Insurance Contents Electricity Garden Maintenance House Maintenance Furniture Replacement Telephone Petrol Car Insurance Car Servicing Car Registration Cash Living Clothing Golf Subscription Entertainment Holidays Small Sundries Extraordinary Medical	1,200 1,644 1,200 400 350 1,300 668 1,000 1,800 2,928 2,016 800 400 400 13,000 4,000 1,100 3,000 5,000 500 2,000 950	Objective Inflation Adjustment 20 years @ Period Investment Return Annual Investment Required Add: Company Tax* Total Salary Trading Profit Required**	2% Years Gross 11% 33%	1,000,000 1,485,947 20 Net 7.92% 32,760 16,136 48,896 63,411 112,307
   Total Expenditure Tax @ average 28% Gross Salary Required	45,656 17,755 63,411	*Assumes the investment requirement is taken as dividend ** Before salary and tax

   
   
   
    

3. Alternative to the above, objectives can be less personal being more specifically related to the mission statement. Objectives should be expressed in terms of market share targets, profitability, finance and personnel ratios etc. (See Figure 3)

   Figure 3:- Company objectives

   Figure 3 illustrates a selection of items that typically would be included in the objectives of a company. When "etc." is quoted, it indicates that the example shown is likely to be repeated many times for other instances of the same item.
   For convenience the objectives of the company are shown as one document. In practice there would be a separate document compiled by each senior manager (for chief executive approval) linked, as illustrated in the example, to the policy statement and possibly to a management by objectives scheme.
   
    

    

   Business Plan for your Payroll Department
   COMPANY .....XYZ Manufacturers Ltd
   April 5th 1999.....to 31st March 2000
   COMPANY OBJECTIVES
   AREA		OBJECTIVES
   		PRESENT	POLICY	PLAN YEAR	FUTURE YEARS
   MARKETS Product A(etc.)	Market Area 1 Market Area 2 Market Area 3 Market Area 4(etc)	Market Share Present 11% 16% 18% Nil	Market Share Minimum 15% 15% 15% 15%	Market Share Plan 13% 20% 20% Nil	Market Share Strategic 20% 20% 20% 15%
   CUSTOMERS SERVICE Stock Availability Delivery Within Rep Call Frequency DEBT COLLECTION	% of Orders Received Market Area 1(etc.) Category A (etc.) Debtor Weeks Overdues	79% 3 days 3.6 weeks 8.9 21%	90% 2 days 3.0 weeks 7.5 >10%	85% 3 days 3.2 weeks 8.0 15%	90% 2 days 3.0 weeks 7.5 >10%
   PRODUCT QUALITY Customer Returns Factory Rejects Specifications PRICE (Gross Margin) Product A (etc.) STOCK TECHNOLOGY Product A (etc.)	% of Sales % of Production Products Covered Customer Cat A (etc) Raw Materials Work in Progress Finished Goods Resistance (etc.)	2.9% 3.9% 50% 34.7% 6 weeks 7 weeks 13 weeks 200 kgs	>2.0% >2.0% 100% 36.0% 5 weeks 5 weeks 12 weeks 200 kgs	2.5% 3.0% 75% 36.0% 5 weeks 6 weeks 12 weeks 200 kgs	>1.0% >1.0% 100% 36.0% 5 weeks 5 weeks 12 weeks 250 kgs
   SUPPLIERS RAW MATERIALS (etc.) PAYMENTS Creditors	Number Max Contract Per. Notice Period Cost Reduction Local Area (ave) National (ave) International Overall	11 6 months 6 months Not Appl. 4 weeks 6 weeks 3 months 6.2 weeks	8 to 12 4 months 4 months Not Appl. 4 weeks 6 weeks 3 months 7.0 weeks	10 5 months 5 months -3% 4 weeks 6 weeks 3 months 6.5 weeks	5 to 10 3 months 3 months -5% 4 weeks 6 weeks 3 months 7 0 weeks
   EMPLOYEES LABOUR TURNOVER EFFICIENCY Direct Workers Sales Force Sales Administration General Admin TRAINING Snr. Exec Course (etc.)	Factory Salaried Factory Efficiency Cost Ratio to Sales Cost Ratio to Sales Cost Ratio to Sales Number to Train	30% 8% 81% 5% 7% 6% 4	Max 20% Max 5% 90% 4% 5% 5% All Snr. Mgt.	25% 7% 85% 5% 6% 5% 4	20% 5% 90% 4% 5% 5% 5
   SHAREHOLDERS DIVIDENDS	Interim Final	4 cents 8 cents	2/3 of Profit Available	4 cents 9 cents	5 cents 10 cents
   FINANCE Gearing Ratio PROFIT Trading Profit	Borrowing÷Equity Return on Capital	61% 16%	50% 25%	55% 20%	50% 25%

   
   
   
    

4. Separate the business goals into short term and long term.
   Short term being those which can be achieved in the current year. Long term being those that require strategic changes to the business over the longer term. Where objectives indicate that changes from present performance is planned, an action plan specific to that objective should be compiled, showing how and in what time scale the objective will be achieved.

1. Write a brief description of the business
2. List the type of product(s) or service(s) supplied. Assess the each product in relation to the product of competitors.
3. Complete a SWOT analysis. (See Figure 4) That is consider the Company's current Strengths; Weaknesses; Opportunities and Threats. A well prepared SWOT analysis, will indicate the areas that require action plans.

   Figure 4:- SWOT Analysis

   Figure 4 1llustrates the sort of items that may be included in the SWOT analysis of a company supplying a range of products, both nationally and internationally.
   To be able to prepare a SWOT analysis which will help to determine priorities, it is essential that:-

   1. An objective view is taken of the performance and efficiency of the Company to date.
   2. Reasonable estimates have been made, indicating the Company's market share.
   3. There is knowledge of the market share and the performance of the Company competitors.

   List the factors which you consider are the reasons for the Company's success. That is, what is its competitive advantage?
   Consider how external factors influence the business. For example, factors such as Economic (e.g., inflation and exchange rates); Political Climate; Social Climate; and Technology.
   Consider how internal factors, such as Image; Location; Personnel etc., influence the business.

    

   Business Plan for your Payroll Department
   COMPANY .....XYZ Manufacturers Ltd
   April 5th 1999.....to 31st March 2000
   BUSINESS ANALYSIS - SWOT
   STRENGTHS XYZ Ltd is a long established (10 years) company and has a reputation as a reliable supplier. The quality of its products, given their price range, is very competitive. Production quality systems in place are superior to those of its competitors.	OPPORTUNITIES Many smaller competitors are ideal acquisition targets. Better production control systems can improve service and lessen down time. Due to the reduction in tariff protection, there are significant opportunities, in the medium term, to develop Market Area 1. In the longer term there will be opportunities in Market Area B. Using cheaper imported raw materials, provided reliable suppliers can be identified
   WEAKNESSES The service ratio is 10% below the Company's objective of 90%. Downtime in the factory is excessive due to material shortages. Market share in Market Area 1, is below the Company's minimum market share target.	THREATS The reduction in tariff protection and import restrictions is likely to result in increased competition from low cost producers in developing countries. Competition from local producers is increasing. 4 new competitors have entered the market this year.

   
   
    

    

4. Summarise the business performance of the last few years in terms of Sales, Costs and Operating Profit.

1. By product/activity state the following:-
   1. The target market(s)
   2. Customers - why they specifically come to the company.
   3. The estimated market size and the Company's market share objective. (See Figure 5)
   4. The growth factor. That is , is the market for the particular activity/product, growing; static; or declining. (See Figure 5)
   5. Market research needs. That is the research you need to undertake during the planning period, to help you meet your marketing plans.
   6. Advertising methods and focus.
2. Compile an analysis of competitors on the following lines:-
   1. List all the competitors in the field.
   2. Analyse their strengths and weaknesses.
   3. List their products.
   4. Rate their pricing structures compared to your own.
   5. Make an assessment of their promotional activity compared to your own.
   6. Make an assessment of their distribution methods compared to your own.
3. Basing your estimates on Objectives, Previous experience and the Marketing Analysis estimate the sales (excluding indirect taxes, such as sales taxes; G S T; V A T; etc.) for the year as follows:-
   1. For each activity or product group, estimate the sales for the year. (See Figure 5) If quantities are important, then the estimate should be done in both quantity and value terms.

      Figure 5:- Market Share Assessment

      Figures 5 shows the sales history and market share calculations for a hypothetical Product Group-A in Market Area 1, together with the estimated sales projections for the Plan Year.
      To calculate market share, requires that an indicator or indicators, relevant to the business and on which calculations can be based, needs to be established. The market share calculations illustrate the principles of how market share can be estimated in particular circumstances.
      The example illustrates the use of population statistics and knowledge of competitor operations.
      Note that the Action Plan to acquire a competitor, would be backed up by data determined from an investigation and investment appraisal of the project contained in a medium term Strategic Plan.

       

      Business Plan for your Payroll Department
      COMPANY .....XYZ Manufacturers Ltd
      April 5th 1999.....to 31st March 2000
      MARKET SHARE ASSESSMENT
      PRODUCT GROUP Market Growth Expected		Product A 2% per Yr	MARKET AREA Price Inflation Expected	Market Area 1 2% per Yr
      SALES HISTORY This Year Act/Est Previous Year 1 Previous Year 2 Previous Year 3 Previous Year 4	Units '000 4.3 4.1 4.0 3.4 2.7	$'000 55 52 50 40 30	COMPETITORS Competitor A Competitor B Competitor C Others (10 total) Total	SIZE INDICATOR Twice Same Half 4 times 7½ times
      ESTIMATED TOTAL MARKET Basis of calculation:- Competitors Basis Households - Total in Market Area 1 Expenditure per household Total Expenditure (Source - Government statistics) Total Market current year Market share Total Market Business Plan for your Payroll Department Year			CALCULATION $55k x 8½ 660 $897/annum 660 x 897 500 ÷ 55 500 x 1.02 growth x 1.02 infl	RESULT $'000 467.5 592.0 (say) 500.0 11% 520
      ACTION PLAN Aquire the competitor ABC Ltd in Market Area 1 - Region 2, where the Company's representation per household is lower than in other main conurbations.
      BUDGETED SALES Actual/Estimated Sales adjusted to Plan Year Aquisition ABC Ltd ABC Ltd - Total Sales $22k per annum Total Budgeted Sales Budgeted Market Share TARGET MARKET SHARE			CALCULATION 55 x 1.02 growth x 1.02 infl completed June 6 mths = 11.0 x 1.02 growth x1.02infl 57.2 + 11.4 68.6 ÷ 520	RESULT $'000 57.2 11.4 68.6 13.2% 15.0%

      
      
      
       

   2. Summarise the sales details to determine the sales for the year.

      Figure 6:- Sales and Market Details

      Figure 6 illustrates a typical summary showing estimated market size, market share, quantities, prices and the total sales for the year.

       

      Business Plan for your Payroll Department
      COMPANY .....XYZ Manufacturers Ltd
      April 5th 1999.....to 31st March 2000
      SALES and MARKET DETAILS
      Prod Code	Product Description	Market 1	Market 2	Market 3	Total
      Estimated Quantities - Total Market
      1 2 3	Product - A Product - B Product - C	40,000 15,000 8,250	16,150 14,780 20,000	7,900 8,400 10,000	64,050 38,180 38,250
      Market Share
      1 2 3	Product - A Product - B Product - C	13.1% 35.0% 12.5%	20.0% 50.0% 15.0%	10.0% 15.0% 20.0%
      Planned Quantities
      1 2 3	Product - A Product - B Product - C	5,240 5,250 1.031	3,230 7,390 4.600	790 1,260 2.080	9,260 13,900 7,711
      Prices
      1 2 3	Product - A Product - B Product - C	$13.10 $10.25 $15.75	$13.00 $9.75 $15.00	$11.75 1$9.25 $13.50
      Sales Values
      1 2 3	Product - A Product - B Product - C Total Sales	68,644 53,813 16,238 138,695	41,990 72,053 69,000 183,043	9,283 11,655 28.080 49,018	119,917 137,520 113,318 370,755

      
      
      
       

   3. Estimate the production levels needed to support planned sales. (See Figure 7)
      Production will need to vary from sales:-
      • When stock levels need to be increased to support an increasing sales activity, or reduced if the opposite is the case.
      • When stock needs to be produced to support a development project.
      • If the Company has a policy to increase stock (say to support improved customer service) or reduce stocks (say to liquidate obsolete stock).

      Figure 7:- Quantity Planning Schedule

      Figure 7 shows the type of calculation which determines the level of production output, production input and purchasing to achieve planned levels of stock. It is important also that this calculation is completed logically, otherwise the plan will not include the correct levels of stock and the finance to support it.
      Note that the example assumes that the same stock ratios apply to the whole of the product range. In some businesses it is possible that different stock holding ratios will apply to different product groupings.

       

      Business Plan for your Payroll Department
      COMPANY .....XYZ Manufacturers Ltd
      April 5th 1999.....to 31st March 2000
      QUANTITY PLANNING SCHEDULE
      Prod Code		Fin Gds Op/Stk	Plan Sales	Fin Gds Cl/Stk	Req Prod Fin Gds	W I P Op/Stk	W I P Cl/Stk	Req Prod Input	Raw Matl Op/Stk	Raw Matl Cl/Stk	Req RM Purch
      Stock Ratios(wks)		13.0	52.0	12.0	47.0	7.0	6.0		6.0	5.0
      1 2 3	Product - A Product - B Product - C Total	2,315 3,475 1,928 7,718	9260 13,900 7,711 30,871	2,137 3,208 1,779 7,124	9,082 13,633 7,562 30,277	1,353 2,030 1,126 4,509	1,159 1,740 965 3,864	8,888 13,343 7,401 29,632	1,159 1,740 965 3,864	966 1,450 804 3,220	8,695 13,053 7,240 28,988
      Calculation Examples:- Finished Goods - Closing Stock: 9,260 ÷ 52 x 12.0 = 2137 Required Production - Finished Goods: 9260 - 2315 + 2137 = 9082 Work in Progress - Opening Stock: 9082 ÷ 47.0 x 7.0 = 1353 Required Production Input: 9082 + 1,159 - 1,353 = 8888

      
       

1. If the plan anticipates changes from the Company's current performance, then these changes should be supported by an Action Plan. The Company Objectives (Figure 3) indicate that a number of improvements, in different areas, are included in the Business Plan for your Payroll Department. The Action Plan data may be from a medium term strategic plan or a plan specific to the Business Plan for your Payroll Department year.
   For example the improvements in debtors ratios and the stock ratios should be supported by action plans, as should the acquisition to increase the market share of Product A in Market Area 1 in Figure 5.
2. A separate Action Plan should be produced for each specific project.
3. The documented action plan can be compiled and reported in any format which suits the particular plan. It should list the things that have to be done to implement the plan, in a realistic timetable.
4. The Action Plan report and valuation should be for the duration of the Plan to completion, even if this exceeds the planning period.
5. The Action Plan should then be evaluated in terms of costs; benefits and finance requirements. Try to do this separately for each element of the Plan then summarise it into the affect it will have on the Company's profit and loss A/c and Balance sheet for each year of the plan.

   Figure 8:- Action Plan - Acquisition of ABC Ltd

   Figure 8 illustrates what the Action Plan to support the acquisition of ABC Ltd (see Figure 5) may look like.

    

   STRATEGIC PLAN
   COMPANY .....XYZ Manufacturers Ltd
   From April 5th 1999.....To 29 April 2002
   ACTION PLAN
   Acquisition ABC Ltd - September 1999
   Motivation To increase market share in Market Area 1 and avoid confrontation with Competitor A Acquire the contacts and goodwill developed by ABC Ltd in this market area
   Action Schedule
   By Week Ending	Action					Completed By
   14/5/99 28/5/99 11/6/99 18/6/99 2/7/99 16/7/99 23/7/99 27/8/99	Contact the owner to explore his interest in a sale Compile a preliminary heads of agreement. Pass to the solicitor for his input Peliminary heads of agreement from solicitor Negotiate and agree Heads of agreement Basis of assets and stock valuation. Goodwill element Date of transfer Heads of agreement to solicitor to draw up agreement documents Meeting with owners and solicitors to go through the agreement Exchange and sign the agreement Take stock and assume control					11/5/99 26/5/99 11/6/99 16/6/99 13/7/99 5/8/99 5/8/99 27/8/99.
   Financial Summary
   Net Assets Acquired Fixed Assets Working Capital Operating Capital Employed Less:-Borrowings Net Assets Acquired Goodwill Consideration		1999 $'000 3.0 6.3 9.3 3.0 6.3 1.0 7.3	Forecast Trading Result Sales Operating Costs Trading Profit Less:-Restructuring Costs Goodwill Written Off Synergy Benefits Adjusted Trading Profit Average Capital Employed Return on Capital	1999 $'000 22.0 20.3 1.7 -3.0 -1.0 -2.3 5.2 -44.2%	2000 $'000 44.0 40.6 3.4 - 2.0 5.4 10.3 52.4%	2001 $'000 44.0 40.6 3.4 - 2.0 5.4 10.3 52.4%

   
    

1. Estimate the Capital Expenditure that will be required during the year to replace existing fixed assets. (See Figure 9)
2. Estimate and/or summarise from Action Plans the Capital Expenditure that will be required for additional fixed assets.
3. Estimate the sales of assets that are planned to occur and the gain or loss resulting from the disposal. (See Figure 9)
4. Calculate the depreciation charge.
5. Calculate the movement in fixed assets, by calculating and deducting the depreciation charge and adjusting for additions and disposals. (See Figure 10)

Figure 9 illustrate fairly typical summaries of capital expenditure and disposal plans. In larger companies it is probable that something similar to the top half of the schedule would be submitted by different managers detailing their investment proposals. Expenditure on additional items should be justified by an appraisal procedure and/or inclusion in an action plan. The timing of the purchases and disposals are required for later depreciation and cash flow calculations.

Figure 10 illustrates the information required to calculate the movement in fixed assets and how that information can be summarised

1. Ensure that each element included in the Business Plan for your Payroll Department is included in the objectives of someone in the organisation, and that all elements in the plan are covered.
2. Monitor that the activities included in Action Plans are implemented in accordance with the planned timetable.
3. Plan the schedule to be used for comparing actual performance with the plans. The frequency of the comparison will depending on how critical the activity is to the achievement of planned objectives. Some activities may be compared daily, e.g. sales order intake and sales, action plans monthly, others on a quarterly basis e.g. routine expense overheads.
4. Implement activities to correct deviations from plans and/or revise targets where necessary.