Some review questions

1. What is a business plan? Give three reasons why a person wishing to start up a new business will need to complete one.

2. Outline tree types of insurance a new business is likely to need.

3. Suggest the likely resource requirements of a new small business producing picture frames.

4. What is a ’Mission Statement’?

5. Suggest how an entrepreneur could evaluate a new business idea.

6. What is meant by ‘an expanding market’? Suggest two markets that are currently expanding.

7. Explain why a business must have an understanding of current legislation concerning employment and health and safety. b) What other laws are likely to affect the running of a small business?

8. A small retail business has just moved into new premises to sell computer games. It intends to decorate and refurbish the shop to install new counters, shelving, carpets, and TV monitors, so that customers can try out the games at different games consoles. Advise the owners on how they can plan and schedule the work required, using Critical Path Analysis and GANNT charts.

9. List the likely overheads involved in running a small hairdresser’s.

10. Why do small businesses need external support? Suggest three sources of support for small businesses.

Unit 15. Producing a Business Plan

Key words: marketing mix, marketing plan, marketing budget, unique selling points, best practice benchmarking, production plan, job production, flow production, batch production, Just in Time production (JIT), Total Quality Management (TQM)

15.1. Business Objectives and Timescales

The business plan

A new business that has considered in some detail its business idea and market potential, and has worked out plans that will help it achieve set objectives, will stand a better chance of survival than a business that has not. One in four new businesses fails in the first few years of operation. Drawing up a business plan can significantly improve the chances of survival. The following table outlines the typical contents of a business plan, as suggested by a large firm of accountants.

Table. Business plan checklist

Business	Description of the business Business objectives Ownership Key personnel
Management	Managers Missing skills, and how these will be provided
Products	Description of products Why products are better or different
Marketing	Major customers Predicted market share Major competitors Market strategy Pricing Methods of sale Average size of orders Advertising methods and costs
Production plan	Details of product design and development Raw materials needed and available Suppliers Number of employees Training needed Premises location Equipment required and prices Lead times in delivery
Financial Plan	Cashflow forecast Projected balance sheet Projected profit and loss statement Mechanisms for monitoring and review of accounting records

Source: Ernst & Whinney: ‘Starting Your Own Business’

Business objectives

Producing a business plan is an important means of clarifying businesses objectives. The plan should outline a range of objectives to be achieved over a period of time. A firm cannot hope to make a profit immediately, but is likely to set it as a long-term objective. In the short run, establishing the product and building sales are by far the most important objectives.

To supply a good or service: the first aim of any business that wants to be a success must be to produce a good or service that people either need or want. A business that aims to make a profit will stand no chance of doing so if people are not willing to buy their product.

To achieve sales volume: if a business can supply the right product in the right place at the right time and at the right price, it has a good chance of making a sale. Setting price low initially and advertising will help to generate sales for a new product. However, selling at a low price at first is unlikely to make the business very profitable. When a business is new and output is low, the cost per unit of production is high, because fixed costs, such as rents, rates, and insurance, are spread over a small output. This usually leads to high prices in order to cover costs, and so makes the firm uncompetitive.

A business may aim to achieve a higher level of output in order to expand production, and so achieve economies of scale. As output and sales rise, fixed costs are spread more evenly over a larger number of units, and so cost per unit falls. Therefore, a certain target sales volume may be a vital objective, enabling a firm to achieve a low enough level of costs to be competitive in the marketplace.

To achieve sales value: some businesses may aim for high growth in the total cash value of their sales. This is likely to be true of firms which have spent a large amount on new capital equipment and have financed this with loans or other interest-bearing debt. In this situation, high sales value will be needed quickly in order to finance regular interest payments on the debt. A sales maximization objective may be reflected in the marketing strategy outlined by the firm in its business plan.

To break even: covering business costs, or breaking even, is usually seen by entrepreneurs as an intermediate target to be reached along the way to profitability. A business that only manages to break even will not generate enough surplus revenue for expansion or for unexpected costs. Break-even is therefore an acceptable short-term and – exceptionally – medium-term goal, but is not sufficient target for a profit-seeking business in the long term. Non-profit-making organizations, such as charities, will always plan to break even and not to spend more than they generate in donations and other incomes.

To achieve market share: once a product is established, a firm’s medium-term objective may be to expand market share at the expense of rival organizations. In order to achieve a reasonable share of total sales in a market, a business must adopt a marketing mix geared for growth, including product, pricing, distribution, and promotion strategies. A business plan identifying this objective will need to indicate clearly how the firm would cope with competitors’ responses.

Making a profit: profit is the main motive for production in most private-sector firms. However, the importance of making a profit depends upon the stage an organization has reached in its development. Other objectives, including becoming established in the market, or removing competitors, may be more important in the short term. Profit is likely to be a long-term objective.