1.PREPARATION OF A BUSINESS PLAN

You should have a clear understanding of the short and long term objectives on which your business plan is to be based. Always keep in your mind that the overall objective is to make profit.

A Business Plan brings the investor and the entrepreneur together in the investment process.  Without a business plan many banks, finance companies and investors will not consider investing or lending.  The Plan must be thorough if it is to win investment funds.

A comprehensive, carefully thought out Business Plan is essential to the success of entrepreneurs and corporate managers.  Whether you are starting up a new business or extending your current business, whether you are seeking additional capital or proposing a new activity, you will never face a more challenging writing assignment than the preparation of a Business Plan.

The Plan must describe the company and the proposed project accurately and attractively.  Even though its subject is a moving target the Plan must detail the company or the project’s present status, its current and expected future needs.  You must present and justify ongoing and changing resource requirements, marketing decisions, financial projections, production demands and personnel needs in a logical and convincing fashion.

All Business Plans are different however examples can be found on the internet. 0r alternatively other professionals may be able to assist.

Click here to download business plan template courtesy of the Victorian Government.

Click here for an outline of the common start up costs courtesy of Victorian Government.

2.ADEQUATE CAPITAL

Quite often the heaviest expense a business experiences is during start up and it is therefore vital that adequate funding is available at the very beginning.

You must;

Analyse your estimated expenses according to whether they are fixed and variable. Establish the break even point, i.e. the point at which the sales generated produce a return that covers the cost of production.

Determine what profit you consider achievable in relation to what you expect to sell, taking into account the time and effort you will have to contribute, the expertise you have to offer and the investment you have to make.

Consider whether you have enough money from your own resources to purchase the assets which will be required and then determine how much money is required to cover your operating and other costs through to the time when profits are being generated.  If your most conservative estimates tell you that your cash reserves will run out before the business achieves profitability, you will have to borrow money to take you through to the stage when the business is profitable, stable and needs no more financing. In this context you should evaluate your borrowing capacity.

3.THE LOCATION

Location can mean the difference between success and failure. In situations where the business is retail oriented, you should try to visualise where your customers are and select the location accordingly. If, for example, you establish a business which depends upon passing trade and there is no parking, then you have a problem.A good place for a pharmacy is near a medical centre, and of course any manufacturing operation is ideally located near the source of raw materials and labour.

4. THE ACCOUNTING SYSTEM

Establish an adequate system of accounting and ensure that you understand what the figures represent. Select an accountant who can provide you with this service and backup 24/7 and will take continuing interest in your business. Speak with the accountant regularly and analyse the accounts together. Be sure you understand every facet of them. Your accountant or lawyer will assist you in ensuring that the business, as constituted and operated, complies with all legal requirements and that all appropriate registrations are in place.

Click here for some valuable information on accounting systems etc. courtesy of Victorian Government.

5. THE CREDIT POLICY

If you are proposing to sell your goods and/ or services on the basis that the buyer is to have terms i.e. Time to pay, you must establish an effective credit policy and ensure that the policy is known to the customer and rigidly adhered to.

If at all possible, it is highly desirable to trade without giving credit, or if this is not possible, consider obtaining guarantees from the directors( if you are dealing with a company) or factoring your invoices to provide you with a reliable cash flow.

6. INSURANCE

The requirement for insurance is to protect against the one off, unplanned expense e.g. replacing stock either stolen or damaged by fire. Neglecting to insure adequately can result in business failure.

7. TYPES OF OWNERSHIP

Company.   This is a separate legal entity whereby ownership and management are separated. The company is owned by the shareholders and management is vested in the board of directors. The commercial risk is taken by the company and not the owners/shareholders.There are tax benefits available from operating as a company.

A company may diversify and become a group of several different companies, with each company’s risks isolated from the others.

A very high percentage of businesses today are incorporated.  There are many advantages to be gained by using a company instead of a partnership or some other structure. In particular and as mentioned above, a company offers limited liability, and ownership that can be changed by means of transferring shares, tax advantages and so on.

As the vast majority of businesses are operated by companies, it is appropriate here to highlight some of the more important features of companies and their operation.

There are three major parts in a company structure.  They are:-

*the company itself

*the shareholders

*the directors.

The company can do nearly all things that a person can do.  It can be known by a name plus a number, or simply by a number with the word “Limited”, “Propriety Limited” or “No Liability” following and is responsible for contracts and actions taken in its name.

The shareholders in small/private companies are usually the directors as well.  In larger companies, the majority of shareholders generally will not be the directors.

Shareholders will generally not be able to interfere with the decisions of the directors as regards the running of the company on a day-to-day basis.  However, the role of the shareholders is important, especially when it comes to reviewing actions of directors, and in assessing how the directors have behaved in the light of their responsibilities and the law.

The Board of Directors is the group of people appointed to run the company on a day-to-day basis and to supervise or initiate the activities carried on by persons employed by or in the company’s name.

Servicing the Board are the principal Executive Officer/Managing Director, in his managerial role, or if there is no Managing Director, or as sometimes occurs, the Chairman if he is the Chief Executive as well, and the Secretary or Secretaries.

Sole Trader. This is single ownership where one person directly participates in the ownership, management and profits of the business. It is generally less beneficial than a company as it does not limit the liability.

Partnership. This is direct participation by two or more entities or persons in the ownership, management and profit of the business.

•Once again it is more risky for the partners compared to operating the business as a company

•It is much more complicated when introducing new partners and

•disputes between partners are more difficult to handle.

Trusts

There are a variety of trusts which may or may not be suitable in particular circumstances

Click here for presentation on choosing the right business structure courtesy of Victorian Government.