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Payroll Service

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CREATING A Business Plan for your Payroll Department
A Step by Step Guide 

(Best viewed in 800 x 600 resolution)

A FREE step by step guide that details the methods, procedures and documentation required to create a Business Plan for your Payroll Department. A spreadsheet template together with an example can be downloaded.

The guide details the methods and routines required for a manufacturing business, but if you are a retailer, wholesaler or in the business of providing a service, don't stop reading. Creating a Business Plan for your Payroll Department for any type of business for the most part follows the same procedures. A manufacturing business requires additional calculations relating to manufacturing activities, manufacturing expenses; product costs and stocks. The guide is sufficiently detailed for other types of business to recognise those elements and calculations they have no requirement to include in their plans. Spreadsheet templates are available and can be downloaded. Three separate templates are available that are suitable for either Manufacturing; Wholesaling or Retailing and Service types of business (see the end of this paper).

 


Goals Current Marketing Action Plans Cap. Exp. Monitoring Profitability Evaluation P & L A/c Balance Sheet Cash Flow Analysis by Accounting Period


     

  1. MISSION STATEMENT (See Figure 1)
    1. The Mission Statement states a Company's reason and purpose for being in business. Its purpose is to communicate this to whoever has dealings with the Company both internal (e.g.. employees) and external (e.g.. customers suppliers and shareholders).

     

  2. POLICY STATEMENT. (See Figure 1)
    1. The Policy Statement lists the policies that are considered necessary to comply with the mission statement and achieve the Company's basic objectives.
    2. The statements in the policy document must be realistic and have substance justifying their inclusion, covering such areas as:-
      1. Markets to be supplied and market share target.
      2. Service to customers and attitudes to debt collection
      3. Product quality, price positioning and technology.
      4. Sourcing of raw materials and/or product. The degree of communication with and loyalty to suppliers.
      5. Relationships with employees. The degree of communication, the principles with regard to payment levels, rewards for efficiency and length of service, training methods and support.
      6. The degree of communication with shareholders, and dividend policy.
      7. Financial parameters, such as equity to borrowing ratios and profit levels.

    Figure 1:- Mission and Policy Statement

    Figure 1 illustrates a typical Mission and Policy Statement for a company, which is trading on the basis of service and quality.
    It is important to recognise the basic philosophy and policies, by which you carry out your business, and which you believe gives you competitive advantage. It could be any combination of quality, service, price, proximity to the market, reputation, skills etc.

     

     

    Business Plan for your Payroll Department
    COMPANY .....XYZ Manufacturers Ltd
    From April 5th 1999.....To March 31st 2000
    MISSION and POLICY STATEMENT
    AREA/FUNCTION STATEMENT
    MISSION
    Always to look for opportunities to grow the business, using proven skills to create value for the shareholders.
    ETHICS
    The Company shall conduct its dealings in a fair manner and in such a way to enhance its reputation in both the business and general community.
    At all times and in all transactions the Company will comply with the legal requirements of the country in which it is dealing.
    MARKETS
    SUPPLIED
    SHARE

    To supply the product to the Asia Pacific region.
    A market share of at least 15% in each market segment shall be the minimum target.
    Entry into new markets in the region, should show prospects of achieving the market share requirement in the medium term.
    CUSTOMERS
    SERVICE STANDARDS



    DEBT COLLECTION

    The Company shall offer quality, service and value for money, at least comparable with that of its main competitors.
    Product will be supplied from stock. On average 90% of product should be available on receipt of order.
    A customer can qualify for discounts, based on the volume of business transacted in a given period.
    Before product is supplied, each new customer will be required to supply a banker's reference and at least one trade reference.
    Normal credit terms will be in accordance with industry practice. Current terms = Statement date 20th of the month. Payment due 10th of the month following.
    Extended credit will be given to customers, only in exceptional circumstances.
    PRODUCT
    QUALITY

    PRICE


    TECHNOLOGY


    The product quality is guaranteed. Product subject to customer complaint will be replaced, or if requested payment refunded.

    The product is targeted in the "medium" price bracket.
    Discounts will not be given outside the normal price structure. The price list structure will give discounts related to the size of order.

    The technical efficiency of the product will be maintained at a competitive level.

    SUPPLIERS
    SOURCING
    LOYALTY

    COMMUNICATION
    PAYMENTS


    Local suppliers will be given preference, provided that their quality, service and cost meets that of imported alternatives.
    Established suppliers will be given notice of any intention to change sources that will affect them.

    Detailed product specifications and any revisions will be given to suppliers in writing.
    Payments to suppliers will not be unduly delayed, without prior negotiation.

    EMPLOYEES
    COMMUNICATION
    WAGES/SALARIES
    LOYALTY/SERVICE
    EFFICIENCY
    TRAINING

    The Company shall communicate general policy through the medium of the Company Newsletter.
    Salaries will be in accordance with industry standards, and structured to maintain staff turnover within 10%.
    Employees will receive additional benefits related to length of service and attendance
    Deparmental managers will meet with staff each month to discuss actual performance compared with plans.
    Objectives will be agreed annually for each employee and performance reviewed quarterly.
    The Company will maintain internal training and support external industry related and professional training.
    SHAREHOLDERS
    COMMUNICATION
    DIVIDENDS

    The Company will hold shareholders' meetings in accordance with legal requirements. In addition a half yearly report will be sent to shareholders.
    Dividends distributed will be two thirds of profits available for distribution.
    FINANCE
    EQUITY/BORROWING
    PROFIT

    Borrowings, both long and short term, shall not exceed 50% of shareholders' equity.
    Net profit shall be sufficient to give a competitive return to shareholders and sufficient retention to finance the replacement cost of fixed assets and the inflation in working capital.

  3. GOALS, TARGETS & OBJECTIVES.
    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.

    Return to top

  4. CURRENT BUSINESS.
    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.


     

    Return to top


     

  5. MARKETING and SALES.
    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


         


     

    Return to top


     

  6. DOCUMENTED ACTION PLAN
    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%


       

     

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  7. CAPITAL EXPENDITURE.
    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:- Capital Expenditure/Disposal Summary

    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.

     

     

    Business Plan for your Payroll Department
    COMPANY .....XYZ Manufacturers Ltd
    April 5th 1999.....to 31st March 2000
    CAPITAL EXPENDITURE/DISPOSAL SUMMARY
    CAPITAL EXPENDITURE

    DESCRIPTION
    Ref
    No.
    Mnth
    Purch
    Mnths
    Owned
    Wks
    Owned
    Add/
    Repl
    Cost
    $
    Dep
    Rate
    Dep
    $

     
    Land and Buildings
    Item A
    Item B

    1
    2

    Aug
    Oct

    8
    6

    35
    26

    Add
    Add

    9,000
    7,000

    1.0%
    1.0%

    60
    35
    Total Land and Buildings 16,000
     
    95
    Plant and Machinery
    Item C
    Item D
    Item E
    ABC Ltd

    3
    4
    5
    6

    Jun
    Jun
    Nov
     

    10
    10
    5
    6

    44
    44
    22
    26

    Add
    Add
    Repl.
    Add

    3,200
    4,000
    3,000
    3,000

    48.0%
    21.6%
    21.6
    21.6

    1,280
    720
    270
    324
    Total Plant and Machinery 13,200
     
    2,594
    Fixtures and Fittings
    Item F

    7

    Jul

    9

    39

    Add

    2,800

    18.0%

    378
    Total Fixtures and Fittings 2,800
     
    378
    Grand Total 32,000
     
    3,067
    CAPITAL DISPOSALS


    DESCRIPTION

    Ref
    No.

    Mnth
    Disposal
    Mnths
    Not
    Owned
    Wks
    Not
    Owned

    Cost
    $
    Dep
    Reserve
    $

    W D V
    $

    Proceeds
    $
    Profit on
    Disposal
    $
    Land and Buildings
    Item G
     

    1

    Jan

    2

    9

    3,000

    3,000

    0

    1,265

    1,265
    Total Land and Buildings 3,000 3,000 0 1,265 1,265
    Plant and Machinery
    Item C

    2

    Dec

    3

    13

    2,000

    1,940

    60

    100

    40
    Total Plant and Machinery 2,000 1,940 60 100 40
    Fixtures and Fittings
    Item H

    3

    Jun

    9

    39

    1,560

    1,400

    160

    300

    140
    Total Fixures and Fittings 1,560 1,400 160 300 140
    Grand Total 6,560 6,340 220 1,665 1,445




     

    Figure 10:- Fixed Asset Movement

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

     

     

    Business Plan for your Payroll Department
    COMPANY .....XYZ Manufacturers Ltd
    April 5th 1999.....to 31st March 2000
    FIXED ASSET MOVEMENT

     

    At Cost
    $
    Depreciation
    Reserve
    $
    Written
    Down Value
    $
    LAND and BUILDINGS
    Beginning of the year

    Depreciation
    Less: Disposals
    Add: Expenditure
    End of the Year

    60,000


    -3,000
    16,000
    73,000

    5,000

    600
    -3,000
    95
    2,695

    55,000

    -600
    95
    15,905
    70,305
    PLANT and MACHINERY
    Beginning of the year

    Depreciation
    Less: Disposals
    Add: Expenditure
    End of the Year

    61,000


    -2,000
    13,200
    72,200

    24,000

    4,210
    -1,940
    2,594
    28,864

    37,000

    -4,210
    -60
    10,606
    43,336
    FIXTURES and FITTINGS
    Beginning of the year

    Depreciation
    Less: Disposals
    Add: Expenditure
    End of the Year

    21,000


    -1,560
    2,800
    22,240

    14,000

    1,730
    -1,400
    378
    14,708

    7,000

    -1,730
    -160
    2,422
    7,532
    TOTAL
    Beginning of the year

    Depreciation
    Less: Disposals
    Add: Expenditure
    End of the Year

    142,000


    -6,560
    32,000
    167,440

    43,000

    6,540
    -6,340
    3,067
    46,267

    99,000

    -6,540
    -220
    28,933
    121,173


     

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  8. MONITORING ACTUAL PERFORMANCE
    The management task is now complete. An effective Business Plan for your Payroll Department, has been documented for the year, which details the policies and actions relevant to achieving the planned objectives. To be effective the actual performance compared to the Plan should be monitored during the course of the year.
    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.

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  9. TARGET PROFITABILITY.
    1. The profit objective for a company is usually expressed by the ratio of profit to capital employed (return on capital).
    2. The capital and financial structures of companies vary enormously. A ratio that effectively measures management performance, which is not distorted by these different structures is the percentage ratio of Trading Profit to Net Operating Assets. The Capital Employed figure should be Operational Net Assets before all financing and taxes owing or owed (excluding indirect sales taxes and added value taxes such as VAT and GST). The fixed asset figures should be increased ideally to replacement cost, but if this figure is not known, at least to original cost. The Trading Profit calculated on this basis, is before interest charges and taxes (except indirect sales taxes and added value taxes such as VAT and GST), but after a reasonable salary reward for the management and other business activities of the directors. If capital employed varies significantly on a seasonal basis or regularly during the course of a month, (indicated by the variation in the level of borrowings) then average figures should be used.
    3. It is recommended that a suitable return to aim for, for small businesses is around twice the borrowing costs of the company or three times a safe investment return whichever is the higher. That is if the company can borrow at a rate 11% and a safe investment return is 8%,it should aim for a return