Toolkit on how to Start and Improve your Business

Business Implementation

Toolkit for the creation and follow-up of your business

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 Instruction to Business Plan 1 for Micro and Small Enterprises       

The following paragraphes help you filling the Business plan format chapter by chapter:

Help to 3: Write down the type of business/activity in which the operator is engaged /would like to be engaged.

Help to 4: Fill the starting and termination date of the planning period, specifying the date, month and year.

Help to 5: Describe the work premises and other utilities at the operator’s disposal and describe the specific working premise problems, if any. If there is anything in the location that is of special interest for your business you can stress it, too.

Help to 6: The annual sales should be planned based on certain market surveys or past experiences, if any are available. Planning the annual sales enables you to find out about the desired production amount (it makes no sense to produce more than you can sell) and the annual income. Describe the months during which sales are expected to be high, in order to make the necessary preparations ahead of time and exploit the advantage. For defining the unit price per product/service you should first know the unit costs (see production costs) as well as the prices of your competitors. So probably you will at first fill only columns I-III, to define the possible production amount and after counting the costs per unit you can define the price per unit.

Help to 7: Knowing the possible amount of products/services you can sell, you are now able to plan your desired production capacity, and hence the machinery you will need for this amount. If you already have some equipment, then describe it here. Multiplying the quantity of the specific equipment by its unit cost will give you the total cost of the equipment. Depreciation is the theoretical price to the use of an asset. You need to know it to count later the costs of your product/service. One of the various methods of defining yearly depreciation, and the simplest one, is to divide the purchasing price of the asset by the number of years of usage.

Help to 8: Make a list of the equipment for production/service planned to be bought by the operator. Multiplying the quantity of the specific equipment to be bought by its unit price will give you the total costs of the equipment.

Help to 9: Describe the annually required raw materials by specifying the type of raw materials, the quantity needed, unit and total costs. Indicate the source of raw materials, whether it is self owned, obtained from the local market or imported from abroad.

Help to 10: The general yearly operating expenses should be explained in order to know production costs and determine the price of the product or service. Unit costs are comprised of material, labour, production overheads, administration and marketing costs, if the production of one product is in place. For several products: Divide the production costs by the number of products.

Help to 11: If logically planned, then columns I-III are the same as the annual sales plan chart (see 6). If you multiply the quantity of production/service planned by its unit cost you will obtain the total cost of production or service. To define the unit costs you have to add the fixed costs per unit and variable costs per unit. Fixed costs are usually: administration expenses (tel., fax), stationery, rent, electricity, water, transport, public services, maintenance, advertisement, depreciation, entrepreneur’s salary/ wages and salaries (not piece wage!). Variable costs usually include: Raw materials and salary per produced piece (hint: for more details about counting the unit costs refer to the booklet on "Accounting and Cost Calculation” published by the same editor).

Help to 12: In order to determine the  annual gross profit, subtract all the appropriate annual expenses from the  annual sales revenue. If the annual tax expenses are subtracted from gross profit, the net profit will be obtained.
 

Instruction to the Profit and Lost Statement

The "Profit and Loss" (P+L) Statement is one of the financial analysis tools employed by business enterprises to track the performance of their enterprises. The P+L statement is the difference between sales and expenses of an enterprise over a given period of time, often one year. If this difference is positive, it is called profit, while if it is negative, it is then called loss.

The P+L statement is important for business operators/managers in checking the efficiency of their business strategies and taking proper action. The statement is also important for bankers to check business profitability before extending credit. The statement can only be drawn up based on certain source documents such as the cashbook; otherwise it would be very difficult to apply, especially for micro enterprises. For the statement to be applied in a given enterprise a certain level of accounting system is needed to be in place. The P+L statement has the following components:

• Gross sales: This is the total value of sales, which is obtained by multiplying the price of each product with the total units of output sold.

• Returns and allowances: Stands for the value of damaged goods that are returned by customers to the business enterprise for which the business replaces the damaged goods with new.  It also considers payments that are made as sales commissions, discounts, etc., which again are deducted from Gross Sales to result in Net Sales.

• Costs of goods sold: Stands for the costs involved with regard to direct labour, direct material and factory overhead costs which are deducted from Net Sales to arrive at Gross Profit

• Direct material: Stands for those material costs directly accrued in the production process, such as raw materials.

• Direct labour: Refers to costs of all labour input directly used in the production of goods/services of a given enterprise.  Often the direct labour costs are measured on unit rates and costs of the daily labour.

• Factory overhead costs: Stands for those costs incurred, but which are not directly related to the production process. e.g. depreciation of machinery or equipment, factory shade, rent.

• Administrative and selling expenses: This includes costs incurred for certain administrative purposes and for the distribution of products. These are deducted from Gross Profit to arrive at Operating Profit.  These expenses are for example, salaries of management and support staff, expenses related to telephone, water and electricity bills as well as office rentals and other similar expenses.

• Interest expense: This is the amount of interest to be paid on the amount of loan obtained, based on the current interest rate.

• Estimated income tax: The amount of tax that has to be paid as per the income tax proclamation.

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