Business Plan

What is the business plan and why it is created

Business plan is basically the plan, of how you’re going to manage your future business. It includes the list of various things, such as:

• The reason why you decided to open up your own business

• The type of your business

• Market of your business

• Your potential consumers

• Your short-term and long-term objectives

• The strategy that your are going to use

• Your marketing plan of how you’re going to promote your products or service on the market

• Your competitors and the strategy that is going to be used by your business, in order to compete with them

• Location of your business, and the list of advantages and disadvantages why this location is best for your business

• The list of things that you want to achieve over the next three to five years

• Advantages and disadvantages of opening up the business you chose and all potential risks

• Your price strategy and the amount of money that your business is likely to generate

These were the most general things, that business plans include. There are several reasons why business plans are written:

• To create a formal statement of what the company’s goals are and whether or not they’re achievable and the plan of how to achieve them

• For the better understanding by the business owner and strategic planning

• To reassure the bank that your business is not risky and is likely to be successful, in order to obtain a loan or encourage investment

There’s no fixed content for the business plan and different facts may be included on the individual basis. There are also different types of business plans, for example, there are business plans for profit making and non-profit organizations. The main difference is that those business plans for profit making organizations are usually concentrated on the financial plan and how the business is likely to make as much profit as possible without loosing the quality and its reputation. For non-profit organizations the main trend is to concentrate on service goals. Business plans may also be internally integrated and be in the interests of the shareholders within the company or be externally integrated and be in the interests of external stakeholders.

The most obvious reason is for the business owner to have a better understanding of what the owner wants to achieve by opening up his own business considering all risks, advantages and disadvantages. In addition to this, banks, creditors or investors may also ask a business to provide a business plan as an evidence of what the business borrows money for. Some of the banks or investors, for example, might not give the money to a businessman, because they might find financing the venture is too risky, and there’s a high chance that the business will fail, and the debtor will be unable to pay the money back. So, again, business plans are also used to give reassurance to the banks that you’re able to pay the loan back, and provide them with information about how the money they lend is going to be used, to avoid their fears and minimize the risks for the bank.

Outlining different parts of the business plan

Introduction

The introduction part of the business plan needs to introduce the person (Bank, investor) to your business, summarise the main objectives of your business and show what makes your business stand out and what makes it an interesting offer from the investor perspective.

Marketing Plan

This is the part of the business plan, which includes planning how you’re going to achieve your marketing objectives, advertise and promote your product or service. It can be a part of the overall business plan. It has to show that you have a full understanding of what the market, where you’re planning to introduce your product, is. You also need to show that you have an understanding of who your current competitors are, their market share, and the market share that you’re planning to achieve over a certain period of time. For this part of the business plan you also need to know in details, the groups of your customers and the type of your market. For example, if your product is related to the FMCG (Fast Moving Consumer Goods) market, then you have to explain all current trends on this market, consumer groups targeted, e.g. people from 6-18 years old, and provide up-to-date information, in accordance to your own research, of what their current needs and wants are.

In this part you must also identify your current and potential competitors on the market, and discuss what their product range is, their advantages and disadvantages, and how your products are going to differ from theirs.

You also need to provide some information about how your competitors advertise and promote their products as well as how you’re going to do this, and what marketing or PR strategy you’re going to use to make your method more effective, that will allow you to compete on the market.

In this part you also need to discuss how you’re going to provide your product or service. E.g. via internet, outlets, newsagents, face to face, home delivery. You need to explain what your unique point of sale is going to be.

You also need to discuss how you think you will take payment e.g. by credit/debit card, cash, cheque, standing order, on-line payment, buy and pay later or any other possible scheme.

Production plan

This part of the business plan involves estimating how many items (products) you’re going to sell or how much or long are you going to provide your service for. You have to consider your price, production costs, your profit margins, and the most important- Break Even point or basically how many products you need to sell to cover your costs of production.

For the production plan you also need to work out what the capacity of your factory or your production department is, and work out the most efficient way to use your production capabilities. E.g. efficient use of land at the factory, use of robots instead of people, computerization, dividing the production process into several little tasks, and other methods which will help you produce your products or provide your services more efficiently.

This may also include introduction of Quality Management methods, and certification of the products in accordance to ISSO and other international quality standards.

HRM plan

For this part, firstly you will have to consider how many workers you will need to employ, in order to produce your products or provide your service, how many managers you will need, what certain qualifications you want them to have, whether they will have to speak certain languages in case you go international and many other factors. You will also have to estimate what their wages are going to be and how much of the money you will be able to spend on their wages, whether you will offer them any free training, social packages, and bonuses.

For this part, you will also have to design your own method of interviewing, testing and employing new workers, and how and where you will look for the workforce and advertise available vacancies.

HRM plan also involves a legal part, which includes producing induction programs, person specifications, motivational packages, employment contracts and many other important documents in accordance to all current laws and legislations.

Finance plan

Is a plan for spending and saving future income. It may be similar to a budget. This part of the business plan involves providing approximate profit and loss and cash flow forecasts, purchase arrangements, estimating fixed and variable costs, working out the break even point, and approximate profits, which are likely to be made in the first three years. Financial plan can also be an estimation of the cash needs of the company and how to raise the amount of cash in the company by, for example, selling some equipment.

In this part, you have to explain and discuss how you’re going to fund all of business ventures, your current and future business assets. In addition to this, you may also have to go into deep details and estimate your approximate renting/leasing costs, costs of buying equipment, electricity bills, costs of advertising and all taxes which will apply to your business and the products or service which your business will be providing. You may also have to include an information about how you’re going to keep all of your financial data secure.

Describing the business plan sample provided by BARCLAYS

The first section of this business plan is asking you to provide personal details, such as: your identity, your home address, telephone number, educations, work experience and training.

The second part is called ‘Business details’ and is asking you to identify and describe your business idea and equipment and resources that you will need in order to get started, and the name of your business and date when it has or will be started.

The third part is called ‘Knowing your business’ and basically requires you to show your future business plans, goals and objectives over the next three years. The next part is requiring you to write about your unique selling preposition and your pricing strategy and cost/price estimates.

The fourth part of the ‘Barclay’s’ business plan is called ‘Knowing market’ and requires you to provide information about the current trends on the market where your product is going to be sold, info about potential customers, their demand, needs and the list of the reasons why they need your product or service and what they would use it for.

The next section is called ‘Competitors’ and tests whether or not you can identify your current competitors on the market and compare some of their attributes, such as price, quality, location, their strengths and weaknesses, promotion, availability and other important factors affecting demand for your products.

The sixth section is called ‘Location’ and is asking you to identify the best location for your chosen business, considering all advantages/disadvantages and other influential factors affecting your choice.

The next section is called ‘Promotion’ and is requiring you to discuss the strategy and methods that you’re going to use in order to promote your products or services.

The eighth section called ‘Finance’ is asking you whether or not you have completed profit and loss and cash flow forecasts. After this, it asks you for your sales projections, and your fixed and variable costs estimates as well as your purchase arrangements, your current and future business assets and how you’re going to fund your business. In addition to this, it asks you to estimate your break even point, taking into the account all possible factors such as: taxes, electricity bills, wages, insurance, maintain costs, advertising costs and etc. Although these are only the estimates, which don’t necessarily mean that it will be the truth, you have to be realistic and optimistic at the same time, because e.g. the bank or investor has to see how much risk there’s in investing their money into your business or giving you a loan.

In the end of the business plan given by ‘BARCLAYS’ it also asks you to provide some information about how you’re going to keep your financial records secure and up-to-date, which is also vitally important for the bank or investor to know, as they need to see how you’re getting on and whether you need any additional help. (They want to help to you as much as possible, because they want their money with interest back). In the very end, it also contains some of the legal information such as: Business Banking Code and Data Protection Act, feedback and ‘Barclays’ services and facilities for disabled customers, providing you with all information necessary to contact ‘Barclays’ and ask them any questions should you have any.

PESTEL analysis- is about analysing different macroeconomic factors, which may potentially affect your business. It is a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations. A PESTEL analysis can also be a useful document to have available at the start of a business planning process. It can provide the management team with background and context information about targets towards growth, new product development and brand positioning.

Political- is basically about key political factors, what is happening politically in the environment in which you operate, including areas such as tax policy, employment laws, environmental regulations, trade restrictions and reform, tariffs and political stability,which can potentially benefit or affect the business. It’s all about Worldwide, European and Government directives, funding council policies, national and local organisations' requirements, institutional policy.

Economic- is about what is happening within the economy, for example; economic growth/ decline, interest rates, exchange rates and inflation rate, wage rates, minimum wage, working hours, unemployment (local and national), credit availability, cost of living, funding mechanisms and streams, business and enterprise directives, internal funding models, budgetary restrictions, income generation targets.

Sociological- what is occurring socially in the markets in which you operate or expect to operate, cultural norms and expectations, health consciousness, population growth rate, age distribution, career attitudes, emphasis on safety, global warming. Societal attitudes to education, particularly in relation to government directives and employment opportunities. Also general lifestyle changes, changes in populations, distributions and demographics and the impact of different mixes of cultures.

Legal- what is happening with changes to legislation. This may impact employment, access to materials, quotas, resources, imports/ exports, taxation etc. For example- Children’s Act or Minimum Wage.

Environmental- what is happening with respect to ecological and environmental aspects. Many of these factors will be economic or social in nature.

Location

The location of my business will be:

25 Navigation street, Orion Birmingham

Advantages of this location:

• Close to the city centre of Birmingham (30 minutes by car) (shown on map 1 given below, where “A” is Birmingham and “B” is a city centre)

• Good transport links

• Close to my suppliers such as TESCO (shown as “B” on map 2 given below)

• Lower distribution costs

• Easy to access by customers

• Good labour resources

• Possibility of expansion

• Close to some support services such as insurance, marketing, technical and banking

• Good reputation of the city and this location

• Lower crime rates than in other areas  less risks for my business to be robbed, myself and my future employees

• I have my own parking which I can use for my customers

• I don’t have to pay a rent or a mortgage, because this location is where I live and it has already been given to me by my parents.

Disadvantages of this location:

• Not in the centre of the city of Birmingham, not on the high street

• Relatively close to my competitors

Map 1 below shows how close my location is to the centre of the city of Birmingham.

Map 2 below shows how close my location is to the nearest TESCO store from which I will buy all supplies and ingredients needed to make my cakes.

Break Even

Break even point is the point on the graph, which shows the number of units (in my case cakes) which have to be made, in order to avoid making a loss. For this purpose, I have picked one cake and created a table with my fixed, variable and total costs involved in making this cake. There’s also a Break Even graph, given below.

Fixed Costs:

List of the equipment
Name:	Price/£:
3 TIER S SHAPE METAL STAND	55,93
SET OF SQUARE TINS 6, 8 & 10 INCH	36,45
SET OF 3 ROUND TINS 6, 8 & 10 INCH	29,4
COMPLETE AIRBRUSH KIT AND SET OF	247
11 AIRBRUSH COLOURS
SET OF 11 AIRBRUSH COLOURS	24
9mm FMM BEAD CUTTER	8,24
5mm SMALL METAL BLOSSOM	3,45
/FORGET-ME-NOT PLUNGER CUTTER
3mm HEART SHAPED PLUNGER CUTTER	3,45
SMALL ROSE LEAF PLUNGER CUTTER	2,9
BUNCH OF BALLOONS CUTTER	3
REVERSE BRIDE & GROOM	3
SANTA PATCHWORK CUTTER	3
SNOWMAN PATCHWORK CUTTER	3
SANTA, SLEIGH & REINDEER	3
PATCHWORK CUTTER
NYLON BRUSH	1,75
BRUSH NO.3	2,15
BRUSH NO.5	2,76
2 CELSTICKS FOR MODELLING &	3,6
FRILLING FLOWERS
MEDIUM CELPIN FOR MODELLING &	2,78
FRILLING FLOWERS
DRESDEN TOOL	2,35
PME BONE TOOL	3,4
PACK OF 100 DISPOSABLE PLASTIC	14
SAVOY BAGS (12 INCH)
30 PIECE DELUXE BAKERS ICING SET	14,99
UBE CLEANING BRUSH	1,34
SILVER PLATED WEDDING KNIFE	9,85
ET OF 8 PME MODELLING TOOLS	21
GREEN NON-STICK	10,98
MULTI-PURPOSE BOARD
9 INCH NON-STICK ROLLING PIN	4,6
DEEP FRY AND JAM THERMOMETER	4,25
WHITE FLOWER TRIM	1,25
SPRING SONG WEDDING	17
CAKE DECORATIONS
PACK OF 12 ICING HEARTS ON WIRES	5,4
IN SILVER SPARKLE WITH PLASTIC PICK
10 INCH ROUND AND 14 INCH ROUND	83,67
ACRYLIC PLATES AND THE HIGH TUBULAR
SEPARATOR
6 INCH ACRYLIC SQUARE PLATE	10,66
8 INCH HEART CAKE DRUMS IN SILVER	1,89
10 INCH HEART CAKE DRUMS IN SILVER	2,56
12 INCH HEART CAKE DRUMS IN SILVER	3,01
STACKED CAKE BOX	14,2
8 INCH WHITE CAKE BOX	0,75
10 INCH WHITE CAKE BOX	0,94
12 INCH WHITE CAKE BOX	1,1
PACK OF 10 GREASE PROOF WHITE DOILIES	2,95
PACK OF 9 RED HEART DOILIES	3
250 METER OF SILVER CURLING RIBBON	6,45
500 METER OF RED CURLING RIBBON	3,3
8 INCH ROUND LOOSE BASE SANDWICH PAN	4,79
8 INCH NON-STICK SPRINGFORM CAKE TIN	6,5
10 INCH ROUND STAINLESS STEEL TIN	12,88
Dishwasher	300
Bosch oven	299
Samsung Fridge	299.99
Kitchen sink	59,97
Facility maintenance	200,00
Total cost of equipment:	1239.99
Creating a website	250
+ maintenance costs
Facility maintenance	200
Salary	8832
Public Liability Insurance	498.75
Loan Repayments	3589.2
Total Fixed Costs:	14609.94

Variable Costs:

Ingredients:	Cost/£:
12oz (340 grams) butter or margarine	1.48
12oz (340 grams) Demerara sugar	0.49
6 eggs	2.04
1lb (454 grams) plain flour	0.49
1lb (454 grams) sultanas	0.65
1lb (454 grams) currants	0.65
4oz (113 grams) raisins	0.16
6oz (170 grams) candied peel	0.51
2oz (58 grams) maraschino cherries	0.32
4oz (113 grams) chopped almonds	1.13
½ tspn (2.5ml) mixed spice	0.12
2 tblspn (30ml) black treacle	0.01
1 pinch of salt	0.01
1 wineglass brandy or flavoured liqueur	2.68
Total costs of ingredients per cake:	10.74
To decorate the cake:
200g/7oz marzipan	0.59
1-2 tbsp apricot jam, warmed	0.04
3 egg whites	1.02
600g/1lb 5oz icing sugar, sieved	0.59
11/2tsp liquid glycerine - optional	0.43
1 tbsp lemon juice	0.02
Total costs of decoration per cake:	2.69
TOTAL COST PER CAKE:	13.43

Break-Even= Fixed Costs/ (Selling Price- Variable Cost per cake)

Break-Even= 14609.94/ (55-13.43)= 351.45  352 cakes

HRM Plan for “Victorio Cakes”

Introduction

Initially, I’m not going to employ any workers in my business and I will do everything on my own, so the main labour resource for my business, at least in short term, will be me. I will be carrying out various functions described in my job specification which I have created, shown below:

Job Description

Title: Owner, Cake maker and Top Manager

Reporting to: myself

Role: To produce cakes, provide administrative and management to “Victorio Cakes”

Hours: 8 hours per week Monday-Friday, 12 months per year

Salary: £8832 per year

Job Duties:

• Provide high quality cakes made according to the wants and needs of a customer

• Provide clean hygienic environment

• Buy all necessary equipment, raw materials and ingredients to make cakes, such as cake tins, cutters and etc.

• Look after kitchen and all equipment

• Comply with all legislations and laws

• Comply with all legal employment requirements

• Pay myself a wage complying with the Minimum Wage Act

• Managing cake orders

• Creating profit and loss accounts, balance sheets, cash flow forecasts and other financial data for my business

Person specification

Age: 18

Educational level: A-level

Previous experience: 3 months of working experience in the reception department in “Corinthia Nevskij Palace” hotel and 2 years of working experience in the marketing department at JSC “Electronmash” which produces electric equipment.

Special skills: art and design qualifications

Personality:

Physical aspects:

Location and travel: located at Birmingham, live in the same building where I will be making cakes.

How I will be remunerated and at what level

Pay: £8832 per year

• Undertake a cake decorating course

• Obtain hygiene certificates

• Work out the tasks and create the list of duties and responsibilities for myself

• I will not be initially entitled to a holiday leave, as I will work without holidays during the process of development of the business

My responsibilities will be:

Basically, in my case I will be the one who will be responsible for my own work. I will expect myself to achieve certain qualifications, skills, relevant experience and undertake a cake decorating course to make sure I maintain high quality standards of the cakes that I will make. From the physical aspects, I will also have to comply with certain hygienic standards.

I will be paying myself a wage of £8832 over the first three years, in order to minimise the costs for my business. I don’t really need bonuses or incentive schemes for myself, because it will be my own business and the targets I set will be my main incentives. However, as a long term opportunity, if I employ someone, I will design a special motivational scheme for this employee, which might also include paying a bonus if my employee helps me to overcome the target, produce and sell more cakes than it was expected. In this case, my employee will receive 5% of the total profit, if the business achieves set profit and sales targets. Because I will be an employee and owner at the same time, I will work only at one location, in Birmingham in my own house, without having to move or travel anywhere else or without providing home delivery service, as I expect my customers to come and see me personally and discuss whether they like the cake and make any special requests if they would like to add anything to it.

I will provide myself a sickness leave, but no payment for it. All expenses and allowances will be registered on my firm only. I will provide myself with two time breaks, one 30 minutes break for lunch and 10 minutes break in the morning. If we talk about employing a worker, he might have a chance of becoming a top-manager in my company as a long-term career prospective.

My working equipment will include such things as: (full list of equipment is enclosed with the financial plan)

• Oven, fridge, dishwasher and kitchen sink

• Forks, knifes, spoons and other supplies

• Cake cutters and muffin makers

• Cake/muffin tins of different shapes (round, square, oval and heart)

I will have the following welfare facilities:

• Kitchen room with all washing facilities

• Toilet

• Guest room, where the customers will be asked to sit and discuss the order

• Lightning and heating will be provided

• Such protective clothing as: Special white cooking clothes (cooking robe), gloves, clean shoes (wearing different shoes at the work place) and a cooking hat will be worn to maintain hygiene and increase the quality of the cakes

How I’m going to employ new workers

• Via adverts on the internet and such websites as: FindJob and Facebook

• Via adverts in the magazines and newspapers

• On the walls underground and on the streets

• By the word of mouth or by asking my friends

• Other media sources

Marketing Plan

The purpose of this marketing plan is to explain the market into which my products, will be introduced, and outline the main marketing objectives for my business, explaining how I’m going to achieve them.

Marketing plan is the document which explains four main stages:

• Market review

• Marketing objectives

• Marketing strategy

• Action plan

Market review

Firstly, my business is going to be making exclusive cakes for weddings, birthdays, festivals and other special occasions. According to ‘Bakeryandsnacks.com’ : “UK bread and cake markets are together worth over £4.5bn. According to “Mintel”, the ambient cake market sees 3 per cent growth per year and was worth £1.47bn with particular growth in the premium goods sector last year.” – 1^st February 2007. This suggests that it is a very big and competitive market and that it will be difficult to introduce a new product and survive on this market. However, this was only a general information about the market. Due to the fact that I’m unlikely to have enough money to open a new business, with branches in every part of the world, I decided to open a cake making business in Birmingham, UK. There were several reasons for my decision. Firstly, it is much easier to survive in a similar market in the UK and especially in Birmingham, because there are not as many competitors or firms making wedding cakes as there are in the international market.

There are several trends in this market. To begin with, making wedding or birthday cakes would be a very good business in the UK in Birmingham, because there are people, who are prepared to pay a relatively high price, according to my research, in order to make another person a special present. Analysis of the diagrams, which shows what price my potential customers are prepared to pay for each custom made cake, is included in my price section.

I have asked 200 people, 100 men and 100 women when I did my questionnaire, and the diagrams (enclosed) that I have created, according to my results, clearly identify that the customers are prepared to pay a premium price for my products.

Almost anyone in the UK is likely to buy or try a cake at some point in their life, but how special will the person feel if he or she gets a personal cake, maybe designed by his/her friends. If a person wants to buy an of the shelf cake, he or she may choose to go to the supermarket like “TESCO” and buy a cake for £13.34. This will be a cheap, tasty, well made cake, but it will be an of the shelf cake. Those cakes that I’m going to introduce on the market are going to be custom made and this will be a big difference from what you can buy in the shop. This will make my products unique, for that I will expect my customers to pay a premium price.

Tesco Large Rich Fruit Celebration Cake From the Birthday & Celebration Cakes shelf - see whole shelf

£13.34 (£13.34 per each)

Although my products will be positioned in a premium class and will not be cheap, the demand for is likely to be relatively elastic, due to competitors and changing economic and political patterns on the market. There are about ten competitors on the cake market in Birmingham, out of which three are the most important for my business. Conducting a PEST analysis which may help me to determine my price and marketing strategy for my products.

PEST analysis

Political- due to the fact, that currently there’s a very difficult political situation, prices of raw materials on the world market are continually increasing. This means, that prices on some of the ingredients, which I will have to buy in order to make the cakes, are likely to rise. This means, that my production costs are also likely to increase, which will affect my price. For example, the sugar prices might increase over time, which is going to increase my production costs directly, because I will have to buy sugar in order to make my cakes.

Economic- there are fears that due to the current crisis on the UK property market as a side effect of the property and credit markets in the USA, UK might go into the recession. This means, that there won’t be as much money in the UK economy as there used to be, which means people’s disposable income is likely to decrease, they will have less spending power and more likely to spend their money on the necessities such as home or rent, food and clothing and they will be less likely to spend their money on luxuries such as wedding cakes. This, therefore, means that there’s a risk that my potential customers might rather prefer to save their money and maybe buy an off the shelf cake for 20 pounds if they have a birthday, rather than spending hundreds of pounds on a custom made cake, or buy a custom made cake with a very simple design. In this case, I can actually slightly diversify my business and start making cheaper and much simpler cakes to keep my prices at a low level. However, it will be relatively difficult to do, as there are already many firms who are my potential competitors, who specialize at making cheap and simple cakes, which are mass produced on the market and are very hard to compete with.

Social- there are currently some specific social trends on the cake market, which involve making cakes for the following events:

-Wedding

-Birthday

-Christening

-Christmas and Seasonal events

-Hanukah and other religious events

-Corporate

-Anniversaries

-Engagement

The cake orders for such events are increasingly becoming more popular. This means that my business has to keep with these currently changing social trends, and not rely on the weddings alone, but concentrate on some seasonal events, corporate parties, anniversaries and religious events, which are more likely to keep my business busy and supplied with plenty of orders throughout the year. If I avoid concentrating on just seasonal events such or just weddings, this is more likely to increase my sales and profits.

Technology- today the technology is developing at a such high rate, that new technologies might allow me to make cakes much quicker than ever before, using special ovens or laser printing on cakes, which significantly shorten the time it takes to make one cake and, in long term, decrease the average costs of production, which will allow me to charge lower prices and become more competitive on the cake market. Technology is not that factor, which will have negative effects on my business. Technology may develop very rapidly and people might soon have flying cars, but they will still have birthdays, festivals and weddings and they’re unlikely to stop the tradition of ordering and eating cakes for such special events completely. But even if I’m not optimistic and technology will not develop as rapidly in the future as it does now, it will make no harm to my business anyway, so my business is not very dependent on technology as it is on some other factors.